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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5141
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
Type Your Tax Question Here... is online now

A contractor owes me 4660. There is a contra to be applied

of 2920 due to a... Show More
of 2920 due to a problem job. They are saying they have to deduct income tax before applying the contra and pay me the balance. Is this right as They are taxing me on money I won't receive
Submitted: 2 years ago.
Category: Tax
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Ask Your Own Tax Question
replied 2 years ago.
Hello and welcome to the site. Thank you for your question.
Please clarify for me...
When you say there is a contra to be applied of £2,920.. has this payment already be made to you in the past?
Many thanks
Customer reply replied 2 years ago.
No it's for costs due to mistakes on a job
Customer reply replied 2 years ago.
They've been withholding payment of the 4660 since October until these costs came in, but they actually came in a month ago, Chartered Certified Accountant replied 2 years ago.
Thank you for your reply.There are two ways of addressing this cost.1 - net off whereby you receive the net amount and you declare it as your income. As your contractor is not willing to take this route then the other way is2 - your contractor deducts withholding tax of 20% and gives you the tax deducted amount less what you owe the contractor for faulty job.In your books you would show the tax deducted amount as earnings and show the costs dues to mistakes as your cost of sales.The net result is the same as you would have paid correct tax on your earnings and get tax relief on the costs. I hope this is helpful and answers your question.