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CIS deduction after retention - subcontractor invoices

When creating subcontractor bills and deducting retention, the CIS includes the retention when calculating the deduction
For example, XERO should read:
£250.00
minus 3% retention (£7.50)
£242.50
minus CIS (£48.50)
= £194.00

HOWEVER, XERO calculates:
£250.00
minus 3% retention (£7.50)
minus CIS (£50.00) (off the gross amount not the amount after retention deducted)
= £200.00

This means that CIS deduction is incorrect.

There is no way around this currently even though similar issues have been raised since 2019 on Xero discussion threads and no solution has been made.
The only way around it offered by Xero means that payment & deduction statements are not as per HMRC guidelines and would not show retention deducted from a subcontractor meaning that contractors could be fined!

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Sarah Broughton shared this idea  ·   ·  Report…  ·  Admin →
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  • Alistair Clarke commented  ·   ·  Report

    I also have the issue of not being able to deduct CIS from retention claims. It seems this should be a relatively simple software update for Xero. Still not sure what the neatest workaround is going to be.

  • Scott Lumgair commented  ·   ·  Report

    Currently it is not possible to correctly account for retentions on invoices as Xero only calculates CIS on values coded to "CIS Labour Expense".

    Therefore meaning that the retention element also needs to be coded to "CIS Labour Expense" for the CIS to be correctly calculated. This results in an understatement of CIS Labour Costs and understatement of retentions in the balance sheet of the same value.

    Our workaround is that for each subcontractor invoice with retention posted we need to post a manual journal to increase CIS Labour Expenses (debit) and increase retention liabilty (credit). But when you have a large volume of subcontractor invoices is very time consuming.

    Xero should be add a "CIS Retentions" balance sheet code which also allows CIS deductions to be calculated on it after retentions.

    I have seen this issue on various forums for years but Xero has done nothing with it.

  • Mykola Andrusyak commented  ·   ·  Report

    my supplier asking me to deduct retention 5% from total amount first and then after that deduct 20% CIS , I cannot do it on XERO I have to do it manually and at the same time i need to show it on invoice so i have record of it to be able to claim it after a while

  • Melanie Bone commented  ·   ·  Report

    I came across this thread looking for an answer for my client. They could not work out how to calculate CIS after deduction of retention. I am shocked to discover this is not possible on Xero!