VW Taxation Ltd
CIS Limited Company Services
Tax and Accounting Guide for CIS Limited Companies
Let’s face it, the Construction Industry Scheme (CIS), can be a hassle. Once you register for CIS, Tax and National Insurance are then placed on your shoulders, as opposed to the benefits of the PAYE system that comes with being an employee.
But the process doesn’t have to be as time-consuming and frustrating as it normally would be if you decided to follow the guidelines for tax under the CIS scheme. One of the many opportunities to help reduce this burden lies in becoming a CIS limited company.
In this guide, we will explore how CIS may be best utilised as a CIS limited company.
Who Does CIS Apply To?
The CIS was initiated to implement a firmer grasp of taxation over the construction industry. Frequently, at the end of the tax year, a sole trader working outside of a Corporation Tax system frequently ran into trouble when the time arose for a tax return to be submitted HMRC.
This was frequently burdensome to both contractors and subcontractors, which in all honesty, became even more complicated with the initiation of CIS by HMRC. Anyone in construction should be concerned with working, not having to sift through all of the various complexities that come with this process.
This mandate applies to both contractors and subcontractors within the field of construction. For contractors, the burden of ensuring that each contract completed by a subcontractor is taxed at 20% or 30% directly to HMRC can be overwhelming.
Additionally, subcontractors must also go through frequent trials and tribulations to ensure they maintain a valid CSCS card, in addition to ensuring they are getting all of the possible benefits on their yearly tax return. Deductions made under CIS for either a contractor or subcontractor can also be confusing, which isn’t made any easier by the guidelines listed by CIS HMRC protocols.
In short, the confusion of CIS applies to virtually any worker within construction. Yet there are ways to help ease the confusion of CIS, with CIS limited companies being an attractive choice.
What is the CIS of a Company?
The CIS of a company is essentially the revenue collected by HMRC through either contractors, which would imply that contractors are basically overseeing the regulations of their company or subsidiary, and sole traders (subcontractors) who are performing work for a contractor.
Both the contractor and sole trader will need to be registered with CIS in accordance with HMRC to be in full compliance for any working relationship. Since a contractor and a sole trader are not able to take part in any type of corporation tax rate, HMRC imposes a tax rate of 20% for CIS deductions from the sole trader’s work performed (30% for an unregistered sole trader).
Since working relationships can sometimes be infrequent or broken into phases, a contractor must deduct and pay the tax each time a payment is made to a subcontractor.
By becoming a CIS limited company, you will be better-suited to claim any CIS deductions during tax season, and possibly even a better pay rate than what a traditional CIS-related model would provide.
But what exactly is a CIS limited company?
Does CIS apply to Limited Companies?
A limited company within CIS relieves the tax burden substantially, in addition to providing many more benefits that avoid seeing subcontractors taxed everywhere they turn.
For example, if you are registered with CIS, your tax rate will only be a 20% deduction from pay as opposed to 30% for those who are not registered. Additionally, with a limited company you can even choose to pay yourself a dividend as a shareholder since you are working within the confines of your very own business.
Perhaps best of all, since you are a limited company and you are not beholden to the sole responsibility of a contractor in terms of pay deductions to HMRC, you can now make expense claims for the use of equipment and the costs associated with running your limited company.
If you are a self-employed construction worker registered under the Government’s Construction Industry Scheme (CIS), it may be financially & commercially beneficial for you to become a CIS limited company.
Going limited gives you freedom, flexibility, and control over your finances and helps you to maximise your take-home pay.
Financial Savings for becoming a CIS Limited Company
The table below compares a typical annual tax rebate, showing clearly the possible financial benefits of changing to a CIS limited company. Costs include accounting fees with VW Taxation. The figures above have been used purely for representational purposes. Please contact VW Taxationfor a no-obligation comparison based on your personal circumstances.
| £25,000 | £35,000 | £45,000 | |
|---|---|---|---|
| Sole Trader | £1,680 | £1,360 | £1,040 |
| Limited | £2,280 | £2,385 | £2,585 |
| Saving | £600 | £1,025 | £1,545 |
Benefits of Going Limited
- More control over your finances
- Increased tax efficiency including tax savings on expenses
- Minimising personal liability so if the company runs into financial difficulty, protecting your personal assets
- Tax relief on pension contributions
- Improved credibility and legitimacy, which may be more appealing to contractors and employers
How Do I Claim Back CIS Limited Company?
When you decide to become a limited company, your company can claim a repayment if you have paid too much taxes throughout the year. The process of seeking this rebate could be complicated if precise records of all expenses and tax paid throughout the year by your limited company is not routinely logged and analysed.
Additionally, getting the best out of your company in all of the above-listed benefits is always ensured if you have a professional set of eyes overseeing your company every step of the way.
The transition process to becoming a limited company can also be challenging to grasp at first, which is where the services of a taxation expert is best utilised.
- Bookkeeping & invoicing
- Payroll
- Filing of accounts
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