All businesses involved in the construction industry are required to register for CIS; the Construction Industry Scheme, but limited companies and sole traders are treated quite differently within the scheme when it comes to deductions and claiming refunds from HMRC.
According to the legislation, all deductions made under CIS are treated as a “payment on account” of a subcontractor’s tax liability. However, there are some subtle distinctions relating to how these transactions are treated depending on the type of entity. Deductions suffered by a sole trader or partnership are treated as a payment on account of the tax due on their profits. In contrast, deductions suffered by a company are treated as a payment on account of that company’s liabilities. (more…)