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CIS - why is it different between ltd / sole trade

Differences between CIS deductions as limited company vs sole trader

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Please can anyone explain why the set up of CIS scheme is different as a limited company vs sole trader?

As a sole trader eg. If £1000 was deducted from invoices within one month this would be deducted from the final self assessment tax bill and I would "banked" £1000 tax with HMRC.  If I also deducted £500 from a subcontractor I would send this to HMRC within the same month so HMRC would £1000 of my CIS tax and also £500 of subcontractor.

As a limited company if I get £1000 deducted from my invoices CIS tax and also have £500 to pay to HMRC for subcontractors within the same month I (we as the company) don't have any tax to pay for that month as we have already had £1000 deducted as a contractor and then take off £500 for subcontractor leaving £500 credit to bring forward to the next month.

I really can't get my head around the fact as sole trader HMRC within one month I will have banked £1000 CIS for me and £500 for subcontractor toward tax bills but as a limited company it doesn't seem like any tax has been put aside as out of the £1000 CIS deducted as a contractor £500 has been put aside for the subcontractor but the other £500 credit is then moved forward to the next month.   

I can't seem to understand the concept and worry that not enough CIS is being put aside for the subcontractors own tax bills each month?

If anyone could explain in simple terms that would be great.


Replies (4)

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By Leywood
09th Nov 2021 09:18

This is something that your accountant can explain.

Thanks (2)
By lionofludesch
09th Nov 2021 09:49

Them's the rules.

However daft they are, HMRC won't change them.

Thanks (1)
By Paul Crowley
09th Nov 2021 10:14

Just is and has been for years
If you struggle with the concepts then you need a conversation with an accountant.
First meeting tends to be free

Thanks (0)
By rmillaree
09th Nov 2021 10:15

"I can't seem to understand the concept and worry that not enough CIS is being put aside for the subcontractors own tax bills each month?"

Its two different calcs so why compare - if you are sole trader you calc one way and limited the other way its all the same money sloshing around.

There is no doubting though if you are sole trader accruing 5k excess refund in year - you may find it tricky finding cash to pay cis tax deductions fromsubbies paid you would not have to find cash for as limited co - that evens out at year end.
Ie sole trader you pay £500 cis tax (not paid via company) and have extra £500 credit that is repaid at year end - pretty simples

Its your job as business owner to sort out cashflow working capital. There is the option for gross status application too if you do enough sales that can make this problem go away.

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