CIS for Limited Companies: A Complete Guide for Subcontractors (Invoices, Reverse-Charge VAT, and Getting Your Money Back)

August 25, 2025

Introduction

If your limited company supplies labour or construction services as a subcontractor under the Construction Industry Scheme (CIS UK), you’ll often be paid after CIS tax has been deducted. The good news: those deductions are your money and can be reclaimed, either in-year via PAYE or as a year-end repayment. This guide explains how CIS for limited companies works, how to show it correctly on invoices (including domestic reverse charge VAT), and exactly how to get your cash back quickly.

Important: If A2Z Accounting processes CIS offsets through your PAYE scheme (the in-year method), an additional service charge applies due to the extra reconciliation, RTI filings and monthly evidence checks involved.

CIS in a nutshell for subcontractor limited companies

• Your contractor must verify you with HMRC.
  • If you’re registered, they deduct 20% CIS from the labour element.
  • If you’re unverified, they deduct 30%.
  • If you hold Gross Payment Status (GPS), no deduction is made.
• Deductions apply to labour only. Materials, certain consumables, plant hire (without operator) and qualifying fuel recharges are excluded from the CIS deduction base.
• VAT is never part of the CIS calculation.

How to show CIS (and VAT) on your invoice

A clear invoice prevents over- or under-deductions and speeds up payment for UK subcontractors.

Recommended layout

1. Labour (CIS-able) – £X
2. Materials/allowable recharges (non-CIS) – £Y
3. Subtotal – £(X + Y)
4. VAT – charge standard VAT or apply the Domestic Reverse Charge (DRC), as appropriate
5. Informational note (optional but helpful): “CIS @20% on labour = £(20% × Labour). Contractor to deduct.”

Always include your company name and address, UTR, VAT number (if registered), invoice number/date, contractor PO, and bank details.

Domestic Reverse Charge VAT (DRC): when you don’t add VAT

Since March 2021, many B2B supplies of construction services between VAT-registered businesses fall under the domestic reverse charge:

• You and your customer are both VAT-registered.
• The supply is within CIS and standard- or reduced-rated.
• Your customer is not an end user or intermediary supplier (if they are, they should confirm in writing, and you charge VAT as normal).

Invoice wording when DRC applies

• Show the net amount only.
• Add: “VAT domestic reverse charge applies, customer to account for VAT at the appropriate rate.”
• You may show the VAT amount for information only (not charged).

CIS remains calculated on labour excluding VAT. Under DRC, you’re not charging VAT anyway, so CIS = 20% of the labour line (if registered and not GPS).

Two ways to reclaim CIS deductions

A) In-year offset via PAYE (best for cash flow)

Use this if you have a PAYE scheme and want the cash benefit during the year.

What you need

• An employer PAYE scheme (set one up even if it’s director-only).
• Monthly CIS deduction statements from your contractors.
• Payroll/RTI software (or an accountant) to file an Employer Payment Summary (EPS).

How it works (month by month)

1. For each tax month (6th→5th), total your CIS suffered and keep the statements.
2. File an EPS by the 19th of the following month, entering the year-to-date (YTD) CIS suffered figure.
3. HMRC offsets that amount against your PAYE/NIC/CIS liabilities.
4. If your CIS suffered exceeds what you owe that month, the surplus carries forward to offset later months in the same tax year.
5. Repeat monthly; reconcile CIS statements to EPS YTD totals.

Pros: Improves cash flow straight away.

Cons: Needs regular reconciliations and accurate RTI filings (hence our additional service charge if we operate this for you).

B) Year-end repayment via HMRC online (once per tax year)

Use this if, by 5 April, you’ve suffered more CIS than you could offset in-year.

Before you claim

• Submit all RTI (FPS/EPS) for the year, including a final EPS showing the YTD CIS suffered.
  • If you didn’t file EPS monthly, you must still submit one final EPS for that tax year with the full YTD figure before claiming.
• Ensure there are no outstanding returns or debts (HMRC offsets refunds against other liabilities first).
• Make sure CIS statements match your EPS totals.

How to claim

1. Sign in to GOV.UK → PAYE for Employers.
2. Select CIS repayment for limited companies.
3. Enter company details, PAYE reference, Accounts Office reference, bank details and the YTD CIS suffered (as per your final EPS).
4. Be ready to provide a schedule of contractors and deductions and copies of CIS statements if HMRC asks.
5. Submit and keep the receipt.

Processing times: Clean, well-evidenced claims are often paid in 2–6 weeks, though checks or missing paperwork can extend this.

No PAYE scheme yet? Register as an employer first so you can file the necessary EPS. Without an EPS on HMRC’s records for that tax year, the standard online repayment route will stall.

Evidence you must keep

• Monthly CIS statements from each contractor (your proof of deductions suffered)
• Sales invoices clearly split labour vs materials and include DRC wording where relevant
• Bank records tied to net payments received
• RTI/EPS receipts and YTD summaries

No paperwork, no repayment – HMRC will not refund without evidence.

Gross Payment Status (GPS): get paid in full

If CIS deductions are choking cash flow, consider applying for GPS so contractors pay you gross. You’ll need to meet HMRC’s business, turnover and compliance tests. Keep filings and payments up to date – GPS can be withdrawn for non-compliance.

Common mistakes (and quick fixes)

1. Charging VAT when DRC applies — Confirm end-user status; apply DRC and add the correct note.
2. Contractors deducting CIS on materials — Always split labour/materials; challenge incorrect deductions.
3. No PAYE scheme, so no in-year offsets — Register and file EPS to improve cash flow.
4. EPS figures not YTD — EPS needs year-to-date CIS suffered, not a one-month figure.
5. Mismatch between CIS statements and EPS totals — Reconcile monthly; fix via the next EPS and keep notes.
6. Year-end claim submitted before final EPS — File the final EPS first, then claim.

Worked invoice example

ABC Fit-Out Ltd (Subcontractor)
UTR: 1234567890 | VAT: GB123 4567 89
Invoice #1023 | Date: 15/09/2025 | PO: 4500123

• Labour – office partition install (week 37): £10,000
• Materials – boards, fixings: £3,500
  Subtotal: £13,500

Domestic Reverse Charge VAT applies — Customer to account for VAT @20% on the above (for information only: £2,700, not charged).

For CIS information: CIS @20% on labour = £2,000 (to be deducted by contractor).

Amount due: £13,500 less CIS £2,000 = £11,500

(Include bank details and agreed payment terms.)

Quick example of the reclaim flow

• April–June: CIS suffered totals £9,000; PAYE/NIC due totals £7,500 → pay £0 and carry £1,500 forward.
• July–March: continue offsetting monthly via EPS.
• After 5 April: if £2,200 remains unused, submit the online CIS repayment claim and receive the balance (subject to HMRC checks/offsets).

Do you need an accountant?

You can manage CIS yourself, but a construction-savvy accountant will set up in-year EPS offsets correctly, ensure invoices comply with CIS and reverse charge VAT rules, reconcile CIS statements monthly, assess GPS eligibility, and deal with HMRC so refunds land faster.

Bottom line (and how A2Z can help)

Handled properly, CIS doesn’t need to be a cash-flow drain. Invoice correctly (labour vs materials, reverse-charge wording), file EPS monthly or at least a final EPS to record CIS suffered, use in-year offsets where possible, and submit a year-end repayment claim if a surplus remains. Keep every CIS statement and reconcile as you go to avoid delays.

A2Z Accounting Solutions (Aberdeen) supports subcontractor limited companies across the UK construction supply chain. We’ll implement your CIS/PAYE setup, fix reverse-charge invoicing, perform monthly reconciliations and manage year-end repayment claims—so your cash comes back quickly and compliantly.

Reminder: If we process CIS offsets through your PAYE scheme, an additional service charge applies to cover monthly reconciliations, RTI filings and HMRC correspondence.

Need help getting your CIS refunds faster and your invoices right first time? Get in touch for practical, construction-savvy support.

FAQs on CIS for Limited Companies

Q: How can subcontractors reclaim CIS tax deductions in the UK?

A: Subcontractors can reclaim CIS tax deductions either during the tax year via PAYE (if they have employees) or at the end of the tax year by submitting a repayment claim to HMRC.

Q: Does the Domestic Reverse Charge VAT apply to all subcontractors in the UK?

A: No. Domestic Reverse Charge VAT UK applies only when both the contractor and subcontractor are VAT-registered, the work falls under CIS, and the customer is not the end user.

Q: What are the benefits of Gross Payment Status (GPS) for subcontractors?

A: With Gross Payment Status, subcontractors receive full payment without any CIS deductions, improving cash flow. However, they must meet HMRC compliance requirements to maintain GPS.