CIS for Limited Companies: What You Need to Know

How CIS Applies to Limited Companies

The Construction Industry Scheme does not only apply to sole traders and partnerships. Limited companies working in the construction industry are fully within the scope of CIS, whether they act as contractors, subcontractors, or both.

Understanding how CIS interacts with your company structure is important because the rules differ slightly from those for sole traders, particularly around how deductions are reclaimed and how Gross Payment Status works.

Limited Companies as Subcontractors

When a limited company provides construction services as a subcontractor, the contractor must verify the company with HMRC before making payment. The verification is done using the company's UTR and Companies House registration number.

Once verified, the contractor applies the appropriate deduction rate to the labour element of the payment:

• 0% if the company has Gross Payment Status
• 20% if the company is registered for CIS
• 30% if the company is not registered or cannot be verified

The deduction is made from the company's payment, not from the directors' personal pay.

Reclaiming CIS Deductions

This is where limited companies differ significantly from sole traders. A sole trader reclaims CIS deductions through their Self Assessment tax return. A limited company reclaims CIS deductions by offsetting them against its PAYE and National Insurance obligations.

Each month, when the company runs payroll and calculates the PAYE and NI due to HMRC, it can deduct any CIS suffered during that period. If the CIS deductions exceed the PAYE and NI due, the company can carry the excess forward or apply for a refund from HMRC.

This offset mechanism means that companies with employees benefit most — the CIS deductions directly reduce their monthly PAYE bill. Companies with no employees (such as a director-only company) may need to claim a refund from HMRC, which can take longer.

Registering Your Company for CIS

To register your limited company as a subcontractor:

1. Ensure the company has a UTR from HMRC (apply for Corporation Tax if you have not already)
2. Register for CIS through HMRC's online service or by phone
3. Provide the company UTR, Companies House registration number, and company details

Limited Companies as Contractors

If your limited company pays subcontractors for construction work, it must register as a contractor under CIS. The obligations are the same as for any contractor:

• Verify all subcontractors with HMRC before making first payment
• Deduct the correct amount from each payment (based on verification result)
• Submit monthly CIS returns to HMRC by the 19th of the following month
• Pay the deductions to HMRC by the 19th of the following month (22nd if paying electronically)
• Issue payment and deduction statements to subcontractors

Deemed Contractors

Your company may be classified as a deemed contractor if it spends more than £3 million on construction operations in any 12-month period, even if construction is not the company's main business. Property development companies, retail chains carrying out shopfitting, and housing associations commonly fall into this category.

Gross Payment Status for Companies

Limited companies can apply for GPS, but the requirements are slightly different:

• Turnover test: The company must have annual construction turnover of at least £30,000 per director, or total annual turnover of £200,000, whichever is lower
• Compliance test: The company and all of its directors must have clean compliance records. Every director's personal tax affairs must also be up to date
• Business test: The company must carry on a construction business

The director compliance requirement is critical. If one director has a late personal Self Assessment return, it can affect the entire company's GPS status. This is something to consider carefully when appointing new directors.

CIS and Corporation Tax

CIS deductions suffered by a limited company can also be offset against Corporation Tax if they cannot be reclaimed through the PAYE system. However, this route is slower — you would need to wait until the Corporation Tax return is filed to reclaim them.

The preferred approach is to offset against PAYE monthly, which gives you faster access to the funds.

CIS and the VAT Reverse Charge

Since March 2021, the domestic reverse charge for VAT applies to CIS-regulated construction services between VAT-registered businesses. If your company is VAT-registered and supplies CIS-regulated services to another VAT-registered business (which is not an end user), you must apply the reverse charge:

• Do not charge VAT on your invoice
• The customer accounts for the VAT on their VAT return

This affects how your invoices are formatted and your VAT return is completed. Your accounting software must support the reverse charge to ensure correct reporting.

Record Keeping for Limited Companies

As a limited company operating under CIS, you must maintain:

• Records of all subcontractor payments and deductions (if acting as contractor)
• Copies of all CIS returns submitted
• Copies of payment and deduction statements (issued and received)
• Verification records for all subcontractors
• Evidence of CIS deductions suffered (if acting as subcontractor)

These records must be kept for at least six years.

Common Pitfalls

1. Not Registering the Company Separately

If you were previously a sole trader registered for CIS and then incorporated, you must register the limited company separately. Your sole trader CIS registration does not transfer to the company.

2. Director Compliance Affecting GPS

A director's personal tax issues can affect the company's GPS. Ensure all directors maintain clean personal tax records.

3. Incorrect PAYE Offset Claims

When offsetting CIS deductions against PAYE, ensure the amounts are correctly recorded on your Employer Payment Summary (EPS). Incorrect claims can trigger HMRC queries.

4. Not Applying the Reverse Charge

Failing to apply the VAT reverse charge when required can result in errors on your VAT return and potential penalties.

How Accounted Helps Limited Companies with CIS

Accounted simplifies CIS compliance for limited companies with features designed for construction businesses:

• CIS deduction tracking — automatically track deductions suffered and made
• Materials separation — Penny ensures labour and materials are correctly split
• Monthly return preparation — if you are a contractor, your CIS returns are prepared from your payment data
• PAYE offset tracking — monitor how much you can offset against your payroll obligations
• VAT reverse charge support — correctly handle reverse charge invoicing

Visit our pricing page to see which plan suits your company.

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Running a construction company means enough complexity already. Sign up for Accounted and let Penny handle the CIS admin for you.