In the following blog posts, I will cover the accounting principles and procedures competency from the RICS.
This is a list of topics to cover for the RICS mandatory competency; this is useful for land surveyors (Geomatics) and Quantity surveyors aiming to get the RICS chartership done.
This competency covers the following items:
- Balance sheets/profit and loss account (Part 1)
- Taxation (Part 1)
- Revenue and capital expenditure (Part 2)
- Cash flows (Part 2)
- Auditing (Part 3)
- Ratio analysis (Part 3)
- Credit control (Part 4)
- Profitability (peppered throughout)
- Insolvency (Part 4)
- Legislation (peppered throughout)
As this mandatory competency at level 1; all you need to know about this competency is the knowledge element. It is up to the candidate to pass this test by demonstrating the knowledge element.
Most of the level 1 are just having an understanding and appreciation of the competency.
Balance Sheet and profit/loss account
The balance sheet is a snapshot of your business's assets, liabilities, and equity. It's a document that shows what your business owns, what it owes to others, and how much money is available to use in the future.
The balance sheet is created by an accountant or bookkeeper. The person who creates the balance sheet has access to all of your company's financial records and can track how much revenue you're bringing in, how much you're spending on expenses, and what kind of assets are being purchased.
A profit and loss account is also known as an income statement because it shows how much money was brought in versus how much went out during a specific period of time (usually one year). It doesn't show any information about the company's assets or liabilities—just how much money came in and went out during that time period.
A profit and loss account is another financial statement used by businesses to track their income, expenses, gains/losses etc over time so they can see how profitable their business activities have been over time.
Taxation
The Value Added Tax (VAT) is a tax that you pay on most goods and services in the UK. It's calculated as a percentage of the price of the item, with 20% being the standard rate.
CIS (Construction industry Scheme)
The CIS deduction is a 20% deduction scheme where the labour element of an invoice is paid by the contractor directly to the HMRC. CIS is a deduction from the contractor’s VAT liability. The CIS deduction has to be claimed by the subcontractor on their VAT return.
This 20% deduction is only applicable to the labour element and only if the subcontractor is registered under CIS. If they are not they are charged the 30%.
So if a subcontractor's invoice comes up to:
Labour: £100+vat
total invoice: £100+vat
Total paid to Subcontractor: £100.00
Total paid to HMRC by the Contractor: £20.00
If the subcontractor is not CIS registered, it will be calculated as follows:
Labour: £100+vat
Total invoice: £100+vat
Total paid to Subcontractor: £90.00
Total paid to HMRC by the Contractor: £30.00
If there is a material element you have to calculate it separately from the labour and then you have to add it on to the labour cost.
So if a subcontractor's invoice comes up to (CIS registered):
Labour: £100+vat
Material: £50+vat
Total invoice: £150+vat (£180)
Total paid to Subcontractor: £160.00
Total paid to HMRC by the Contractor: £30.00
An online excel sheet can be found here on our Google sheets
You can play around with the spreadsheet.
If the subcontractor's invoice is not broken down into the labour, plant element the breakdown will be under calculated on the whole value of the invoice. Of course, as long as their scope falls under the CIS scheme.
The CIS deduction is a tax deduction that you can claim if you're self-employed and make business purchases on which you've already paid VAT. It's calculated as a percentage of your taxable income, and it reduces your income tax bill by up to £3,000 per year.
A CIS deduction counts as any expense that was essential to your business—for example, if you needed to buy new equipment for your office or pay for a software license so that you could operate your company.
To calculate CIS deductions, first determine how much money you made from self-employment during the year. Then find out what percentage of it was above £6,000 (this will be 20%). Finally, multiply those two numbers together and subtract that amount from your total annual income before calculating your personal allowance for tax purposes (the amount you can earn without paying any tax). This will give you a number that represents how much money you can deduct from your taxes through CIS deductions—up to £3,000 per
Reference:
https://www.pattersonhallaccountants.co.uk/cis-tax-deduction-calculator/
