Choosing to be a limited company or sole trader as a contractor

From a Construction Industry Scheme (CIS) point of view ONLY, there is another factor that can affect your decision as a contractor when thinking about whether to become a limited company or not.  

Being a sole trader, any CIS you and your business suffers can only be reclaimed via your own self-assessment tax return. This means that you can only claim it once the tax year is up, so you do have to wait up to a whole year to get any relief. This relief is obtained as the CIS you suffer is, in essence, a payment on account of your tax bill. 

Whereas if you were a limited company, then you are allowed to offset any CIS your business suffers against any CIS, PAYE tax or National Insurance deductions that you are due to pay over to HMRC each month. This means that your company gets the relief much sooner and throughout the tax year. 

*This is only looking at becoming a Limited Company from a CIS suffered point of view and takes no consideration of other factors that could affect this decision. Please seek advice before taking any action.  

Date published 23 Apr 2021

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.