Table of Content
Account Invoice Procedure
Print this Page
Close this Page

1. Account Invoice Procedure:
1. Invoicing is subject to HMRC rules and regulations - this is not an option.
2. Every invoice is a legal document that is a reflection of the company policy towards compliance with rules and regulations.
3. Invoicing is subject to:
  (1). VAT at the applicable rate, dependent on the supplier is VAT registered and the project is zero, reduced or standard VAT rated.
  (2). CIS at the applicable rate, dependent on the supplier is CIS registered (not gross paid) and the customer is CIS registered (able to pay HMRC).
4. VAT must be consolidated and paid quarterly using automated computer-to-computer means.
5. CIS must be consolidated and paid monthly using online services.
6. An invoice is a contract request for payment for one or more work packages completed according to what was ordered or contracted.   A work package should have an "outcome" that is manageable and measurable by the client.
7. An invoice is a frozen legal document that is the automatic outcome from an invocing procedure that involves:
  (1). Supplier details such as name, address, bank, payment details, VAT and CIS registration.
  (2). Customer (client) details such as name, address and CIS registration.
  (3). Project details such as new build, conversion or standard VAT rated.
  (4). Job (work package) or purchase or time sheet details with amount and VAT code.
  (5). CIS accounting with monthly and annual returns.
  (6). VAT accounting with quarterly returns.
8. A unique invoicing procedure may be applicable for:
  (1). Contractor invoicing of time and expenses to a client company.
  (2). Project invoicing of jobs and purchases to a client company.
  (3). Company invoicing of time, jobs and purchases to a client company.
* Many account invoicing systems that originate from the USA may not be fully complient with current HMRC regulations - do not copy what others do wrong.

Glossary:
CIS means Construction Industry Scheme as a form of PAYE.
PAYE means Pay As You Earn as national insurance (NI) and income tax.
VAT means Value Added Tax as a form of purchase tax.
Tax Point Date means the final date that product-services were provided to the customer by the supplier.
Net means an amount without any VAT added such as quoted prices.
Gross means an amount with VAT added such as most retail prices.
Payer means the customer or client who pays.
Payee means the supplier who gets paid.
Job means Work Package as a small unit of work that a project can be broken down to with an outcome that is manageable and measurable.

2. Construction Industry Scheme (CIS):
1. CIS applies to people (and companies) in the construction company who have not achieved a trading history that can be trusted by HMRC.
2. CIS demands that the client is responsible to withhold 20% of all payments and pay that amount directly to HMRC each month as an advance on annual taxes.   CIS to a construction person is the equivalent of national insurance and income tax to a person in any other industry.
3. Eventually, a small construction company will have a trading history with HMRC and can be trusted to have "gross payment" status where the company will be paid the whole of the amount invoiced to the client and the client is no longer responsible to make CIS payments to HMRC.
4. Every client has a legal responsibility to check if their hired construction contractor is CIS registered with "Gross" payment status - if not, then the client must withhold 20% of any payment and pay that amount to HMRC.   It is a construction contractors responsibility to provide their client with applicable CIS and HMRC information to help them make any CIS payments.
5 CIS applies to construction work done on-site and does not apply to administration, design, planning and accoutancy work done off-site.
6. CIS in an invoice is dependent on the client - some will and some will not check CIS status and pay 20% of the invoiced amount to HMRC.

3. Example:
1. HMRC regulations state that "painting and decorating" is construction industry work that is subject to CIS.
2. The painter must have a CIS registration number and must have a UTR HMRC number.
3. The client must check with HMRC if the painter with the CIS and UTR number has "gross payment" status or if CIS must be paid by the client.
4. Where the painter does not have "gross payment" status from HMRC, then the client must deduct 20% of the labour cost and pay tham amount to HMRC.   While it is the clients responsibility to make such CIS payments, it it the painters responsibility to ensure that their CIS payment has been made or else they may be liable for extra taxes at the end of the year.
5. The painter must complete an annual return with details of all payments and all CIS amounts withheld by clients.   Where a client has not paid the CIS amount to HRMC, then the painter is responsible for paying national insurance and income tax on the amount paid by the client - typically 20%.

4. Annual Return:
1. Every person (and company) is responsible for their own income from 5 April to 4 April each year.   People paying PAYE each month have their annual return done automatically for them, but all other people must submit their own annual return.
2. The annual return ending April does not need to be filed with HMRC until the following January, so tax benefits can arise from delayed settlement.   CIS is a means for HMRC to get payments in advance of the annual return for people without a CIS trading history.
3. Once a company is trading more than 100,000 per year, then HMRC may grant them "gross payment" status so their clients are no longer responsible for CIS deductions.   Some clients may imagine they do not need to check the CIS status of a legal company and may overlook their resonsibility to deduct CIS.
4. The annual return is concerned with net income (labour) amounts with CIS and is not concerned with VAT or company paid expenses.   A person (and company) is responsible to pay about 20% of their annual income as income tax where CIS payments have not been made by others on their behalf.

5. Invoice Structure:
1. Payee: From person or company name and address with phone and email address.
2. Payer: To person or/and company name and address with phone and email address.
3. Payee reference as:
  (1). Sales Invoice unique sequence number.
  (2). Service tax point date.
  (3). Invoiced date.
  (4). Supplier reference number.
  (5). Customer reference number (optional).
4. An invoice has a header message to define the purpose of the invoice.   To include site reference with quotation, contract or purchase order reference.
5. An invoice has one or more invoice lines where each invoice line shows:
  (1). Date of event.
  (2). Description to imply labour or expense.
  (3). VAT rate.
  (4). Net Amount.
6. Total labour net amount (when labour is an invoiced line)
7. Optional CIS deduction amount (when CIS is to be deducted for payer)???
8. Total expense net amount (when expense is an invoiced line)
9. Optional VAT addition amount (when VAT is applicable)
10. Total gross payment amount (to match bank account)
11. Payee bank details by supplier for customer, with CIS and UTR.
12. Attachments that may include:
  (1). Work Package sign-off sheet (with signature).
  (2). Photographic evidence of work completed.

6. Invoice Line Options:
Part 1. Time sheets: when personal invoice, when time sheet person is payee, when time sheet is without an invoice number.
Part 2. Purchases (expenses): when purchase customer (13) is payer, when purchase is without an invoice number.
Part 3. Jobs (work packages): when job customer (13) is payer, when job is without an invoice number.

7. Scenario:
1. A person buys some supplies for a job and adds the purchase to their diary so the amount can be claimed with their next invoice.
2. 03 is the person. 12 is the person. 13 is the company as client who pays. 10 is the project.
3. The persons invoice includes the purchased supplies that is paid by the company on behalf of the project.
4. The project invoice to the client needs to include the purchase that has been paid by the company.
5. 10 is the project but the purchase has been paid and cannot be invoiced again.
6. A clone of the purchase MUST be created and the price to the client may be the cost to the company times 12%.
7. Clone: 03 is the project. 12 is the company as supplier. 13 is the client who pays. 10 is the project.
8. The cloned purchase is part of the project diary that is invoices in the normal way.
RULE: a purchase cannot be invoiced more than once and cannot be paid more than once.   Each step in a supply chain of purchases and invoices must be unique and may have different amounts.

8. Account Reporting:
1. Account reporting is driven by the amounts that may be shown on an invoice as:
  (1). Labour net amount (zero when hire or supplies or expense).
  (2). CIS on labour only when applicable by CIS status.
  (3). Expense net amount (zero when labour job).
  (4). VAT when applicable by VAT rate.
  (5). Gross payable.
2. Each account transaction must include:
  (1). VAT rate (determined by supplier and project).
  (2). CIS status (determined by client).
3. CIS amounts are either 20% of labour or zero.
4. VAT amounts are No-Vat, Zero-Rate, Reduced-Rate or Standard-Rate or labour and/or expense.
5. Gross payable is 80% of labour, plus expense, plus VAT.
6. Monthly totals of CIS is used as part of the CIS return.
7. Quarterly totals of VAT is used as part of the VAT return.

9. VAT Rates:
1. VAT rate is dependent on the supplier and may be dependent on the project.
2. Four VAT rates apply as:
  (1). No VAT (exempt essential food, books, travel, allowances).
  (2). Zero-Rate (0%) VAT (new dwelling only).
  (3). Reduced-Rate (5%) VAT (conversion to dwelling only).
  (4). Standard-Rate (20%) VAT (default).
3. A VAT rate as "VAT Included" is used to imply that standard rate VAT is included in the retail price of goods and services.   The net and VAT amounts are calculated from the gross amount and the VAT rate changed to "Standard Rate".
4. The VAT rate has a percentage that applies on the tax point date.
5. The tax point date is the date when product-services were provided - such as the end of job or work package.   The tax point date is NOT the end of the calendar month that the product-service was provided.   However the effect is virtually the same.
6. It should always be assumed that the VAT percentages may change on a specific date, while the rates remain unchanged.
7. VAT should be calculated on the sum of all invoiced line items (with the same VAT rate), rather than on each line item.   However the effect is virtually the same.
8. Please do not confuse No-VAT with Zero-Rate VAT - they are very different things with very different purposes, but the same outcome.

10. Business Rules:
1. A company or project cannot claim subsistence - only people can claim subsistence as food and drink.
2. A company or project cannot claim travel mileage - only people can claim travel mileage.
3. Every financial transaction (task) has the following:
  (03). Owner diary where the task was entered.
  (13). Customer who pays.
  (12). Supplier who is paid.
  (10). Project for cost allocation.
4. The company must identify all costs with a type as (1) cost-of-sale or (2) administrative.   The company must classify costs by cost code that may imply the above type of cost.
5. A VAT account is maintained to show VAT credits (from clients) and VAT debits (to suppliers) - VAT is tax money that belongs to HMRC.
6. A CIS account is maintained to show CIS credits (paid by clients), CIS debits (not paid by clients) and CIS debits (to contractors) - CIS is tax money that belongs to HMRC.

11. Cost Codes:
1. Purchases must be classified to comply with HMRC reporting regulations - that classification is called a "cost code".
2. Auditors and HMRC can be expected to conduct reasonableness checks on the scale of amounts classified by cost code.
3. Each company will evolve their own unique set of costs code that may include:
  (REV). Revenue: from clients.
  (CIS). CIS: paid by clients to HMRC.
  (LAB). Labour: cost-of-sale to complete a project or work package.
  (SUP). Supplies: cost-of-sale to complete a project or work package.
  (HIR). Contract hire: cost-of-sale to complete a project or work package.
  (CON). Consumables: cost-of-sale to complete a project or work package.
  (TRA). Travel or Mileage: cost-of-sale for a business trip and not for normal comuting.
  (SUB). Subsistence: cost-of-sale as food and drink when on a business trip.
  (PPE). PPE and Uniform: cost-of-sale for business purposes.
  (PHO). Phone and Internet: administrative for business purposes.
  (PRI). Paper and Printing: administrative for business purposes.
  (GEN). General: administrative legal, insurance, and accounting.
4. As a policy, the company does not own any fixed assets, does not insure any fixed assets and does not have a safe storage place for any fixed assets.   Fixed assets includes plant, equipment, computers, desks, filing cabinets, vehicles.   No cost code is provided for the purchase of office equipment that is paid for by the company.
5. As a policy, each person owns their own hand tools that are needed to complete a work package.   Contract hire of other equipment is used to complete a work package as a cost of sale.   No cost code is provided for the purchase of tools that is paid for by the company.
6. As a policy, each person may use their own vehicle for approved business travel and may claim the applicable HMRC documented mileage allowance.   Mileage may be claimed up to 45 pence per mile to cover ALL vehicle costs for the first 10,000 miles as up to 4500 pounds per year.   Parking and congestion charges may be claimed as a travel expense, but fines cannot be claimed.   Mileage for normal daily commuting cannot be claimed as a business expense.
7. As a policy, each person may be asked to make business trips using public transport as train, bus, ferry and taxi where all such travel costs can be claimed at cost.
8. As a policy, the company may purchase supplies to complete a work package as a cost of sale.   Any supplies left over on a site must be scrapped or disposed of.
9. Type of cost may include:
  (COS). Cost of Sale: as a purchased cost necessary to complete a project and may be offset against corporation tax - to be maximised.
  (ADM). Administrative: as a company overhead such as insurance that may not be offset against corporation tax - to be minimised.

12. IR45 JOBS:
1. The company shall ensure that full compliance with HMRC IR45 regulations regarding people being employees or sub-contractors.
2. A company shall do whatever is neccessary to ensure that each and every sub-contractor cannot be said to be an employee.
3. Sub-Contractors are identified by:
  (1). Sub-Contractors are paid by the JOB and not by the hour or day or week or month - the client manages the JOB not the person.
  (2). Sub-Contractors use their own tools and their own skills to undertake the JOB while supervised in accordance with OHS regulations.
  (3). Sub-Contractors may substitute one person with an equally qualified and competent person to get the sub-contracted JOB done.
  (4). Sub-Contractors cannot be fired, however a JOB may be terminated when OHS or sub-contracted service levels are not being achieved.
  (5). Sub-Contractors may be paid a "retainer" fee to keep them available for JOBs for the next week, month or year.
  (6). Sub-Contractors do not have maternity or paternity rights or sickness or pension benefits provided by the client, but they can choose their own.
  (7). Sub-Contractors may work for many clients as and when they choose.
  (8). Sub-Contractors must correct defects at their own time and expense.
  (9). Sub-Contractors must be CIS registered and shall have 20% CIS deducted and paid directly to HMRC each month.
4. Every project quotation and client contract has a work breakdown structure of work packages where each work package is a sub-contracted JOB with an outcome.   Every JOB is a work package with an "outcome" that can be managed and measured by the client.
5. It is reasonable to expect each work package to have an estimated duration and price.   A JOB to excavate a trench with an estimated duration of 8 hours and fixed price of 160 pounds does not imply that the sub-contractor is being paid 20 pounds per hour.   The JOB or work package is to excavate a trench with a fixed price of 160 pounds with a service level target of 8 hours.   The work package price is fixed at 160 pounds if the sub-contractor completes the JOB in 4 hours or 12 hours.
6. Sub-Contractors are responsible to clock in when they arrive on-site and to clock out when they leave the site - this data is called a time sheet.   Time sheet data is managed for occupational health and safety purposes to know who is on-site at any time.   Time sheets also record Hand and Arm Vibration (HAV) durations in accordance with occupational health and safety (OHS) regulations.   Time sheet hours on-site is not used for payment to the sub-contractor.

12. Monthly Payments:
1. UK Government procedures have evolved from weekly to monthly payments and reporting.
2. Business practice has evolved to 30 day payment terms and this is reflected in UK laws such as Late Payment Act.
3. Universal Tax Credits has been adopted as a monthly payment to replace previous weekly payments.
4. When people on benefit are paid monthly, it is not logical for sub-contractors to be paid weekly.
5. Employees are paid monthly and sub-contractors (paid by the job) are paid 30 days after the invoice tax point date for each job.
6. Government action is to cause people to be self-reliant for a month - benefits are paid 5 weeks after a claim for benefit is made, but a benefit loan may help bridge the gap.
7. When people are paid weekly and a calendar month includes 5 weeks, then the monthly pay for a person looks excessive and will cause benefit payment issues.   It is not practical to reconcile 52 weeks with 12 calendar months - they do not fit together in any way.
8. Note: many companies change their financial year from April to March to comply with Government reporting requirements.   Regardless of a companies financial year end, annual reports must be from April to March - that can cause extra work where tax rates change from one year to the next.
9. Compliance with how UK Government reports will simply reduced complications for a company and for a person.   Use the law and tax system as it was intended, rather than fight the law by seeking out possible loopholes and exceptions that continually evolve.


Zero-Rate or Reduced-Rate VAT Work:
1. Air conditioning.
1. Bathroom accessories: fixed towel rails, toilet roll holders, soap dishes.
1. Burgular alarms.
1. Central control of light, heat and ventilation.
1. Curtain poles and rails.
1. Decorating materials: paint and plaster.
1. Doors.
1. Dust extractors and filters including built-in vacuum cleaner.
1. Fencing around the boundary (but not landscaping or trees).
1. Firepplaces and surrounds.
1. Fire alarms and sprinkler systems.
1. Fitted furnature (kitchen, wardrobes).
1. Flooring like wood, vinal or tiles but not carpets.
1. Gas and electrical equipment that is wired or plumbed in (not plugged in).
1. Guttering.
1. Heating systems including radiators, warm air, solar.
1. Immersion heater, boiler, hot and cold tanks.
1. Work surfaces, fitted cupboards, kitchen sink.
1. Letter box.
1. Lifts and hoists.
1. Light fittings internal and external, but not remote control unit.
1. Mirrors.
1. Plumbing, showers, in-line water softeners.
1. Power points.
1. Sanitory ware.
1. Safes.
1. Sauna.
1. Smoke Detectors.
1. Solar panels.
1. Solid fuel cookers and oil-fired boilers.
1. Swimming pool including water heaters and filters but not diving boards.
1. Touch pads used for light, heat and ventilation.
1. Turf, top soil, grass seed, plants and trees (some).
1. TV arials and satelite dishes.
1. Ventilation equipment including cooker hoods.
1. Warden call systems.
1. Window frames and glazing.
1. Wind and water turbines.
1. Wiring.
.
1. Piles, foundations, excavation, ground slab, steel work, trenches, drains.
1. Brick work, roof, ceiling, stud walls, dry lining, insulation.
1. Shuttering as temporary works that are essential to tenches and foundations.

Standard-Rate Work:
1. Aga, unless solid fueld or oil fuel or fitted with water heating.
1. Free standing appliances such as fridge, freezer, cooker, dishwasher, microwave, washing machines, dryers.
1. Coffee maker.
1. Audio equipment, speakers, remote controls (but wiring may be built-in building materials).
1. Satelite, freeview and set top boxes.
1. CCTV.
1. Phone.
1. Electrical components for garage doors and gates.
1. Bedroon furnature - frestanding.
1. Bathroon furnature - frestanding.
1. Curtains, blinds and carpets.
1. Garden furnature, ornaments and sheds.
1. Survey, design, planning, consulting, environmental, legal, accounting fees.

Opinion:
1. Taxation has influenced how new dwellings are built in some interesting ways.
1. Where a fridge is "built-in" it is VAT free, but where a fridge is free standing it is +20% VAT - this must be significant.
1. Where a cooker is "built-in" it is VAT free, but where a cooker is free standing it is +20% VAT - this must be significant.
1. Where a floor is wood or tiled or vinal it is VAT free, but where it is carpeted it is +20% VAT.
1. Where smoke detectors are wired they are VAT free, but where they are free standing they are +20% VAT.
1. Alarms are VAT free, but CCTV is +20% VAT.
1. A curtain pole is VAT free, but a roller blind is +20% VAT.

Document Control.
1. Document Title: Account Invoice Procedure.
2. Description: Account Invoice Procedure, policy and guidelines.
3. Keywords: Account Invoice Procedure, policy and guidelines.
4. Privacy: Shared with approved people for the benefit of humanity.
5. Edition: 1.7.
6. Issued: 20 Dec 2018.


Pseudonymised Privacy-by-Design:
03. Diary key: as personal, company or site.
10. Project key: as site.
12. Supplier key: as person or company that gets paid.
13. Customer key: as person or company that pays.
23. Task Type List: Invoice, Payment, Job (work package).
25. Task Date.
57. Payment Date: due or paid.
49. Status List: Pending (red), Invoiced (amber), Paid (green), Cancelled (grey).
50. Cost Code List: Labour, Expense.
47. VAT List: None, Standard, Reduced, Zero, (Included).
61. CIS List: None, Deducted.
51. Quantity number: integer to become decimal -----------------revision ------.
52. Units List: per unit.
53. Rate amount: per unit.
24. Net Amount: = quantity * rate.
58. Income net amount: when cost code is labour.
59. Expense net amount: when any other cost code.
54. CIS amount: CIS accrual ----------- revision -----------.
55. VAT amount: VAT accrual.
56. Gross amount: bank reconciliation.

Person can process:
03. as diary key.
12. as supplier key (when the person is paid).
13. as customer key (UNLIKELY).

Owner company can process:
03. as diary key.
12. as supplier key (when the owner is paid by a client).
13. as customer key (when the owner pays a supplier or person).

Project can process:
03. as diary key.
12. as supplier key (when the project provides a service to a client).
13. as customer key (UNLIKELY).

Client project can process:
03. as diary key.
12. as supplier key (UNLIKELY).
13. as customer key (when the project is paid by the client).

Supplier company can process:
03. as diary key.
12. as supplier key (as the company that is paid).
13. as customer key (UNLIKELY).