CIS for Limited Companies Explained: A Complete Guide by A2Z Accounting Solutions

October 10, 2025

CIS for Limited Companies Explained: A Complete Guide by A2Z Accounting Solutions

Introduction

If your business operates in the construction industry through a limited company, the Construction Industry Scheme, often shortened to CIS, will affect the way you are paid and how you reclaim tax deducted at source. Many directors and finance managers tell us that CIS guidance seems to mix rules for companies and rules for sole traders, which leads to confusion, delays, and missed refunds. 

This comprehensive guide from A2Z Accounting Solutions, a trusted accountancy firm in Aberdeen, explains how CIS works specifically for limited companies, how to keep records that HMRC will accept, and when and how to claim back deductions. We also explain the difference between larger contractors with PAYE schemes and smaller subcontractor-only companies, and we finish with practical tips on Gross Payment Status, timing of claims, and what to do each March to make year end smooth. Everything here is written in plain English and designed to help you move from uncertainty to a clear, repeatable process.

What is CIS and why does it matter for companies?

The Construction Industry Scheme is an HMRC framework that regulates how payments are made between contractors and subcontractors in the construction sector. When a contractor pays a subcontractor, the contractor may need to deduct a percentage of the payment and send that deduction to HMRC. The standard deduction is twenty percent, or thirty percent if the subcontractor has not been verified or has compliance issues. For a limited company, those deductions are not an extra tax. Instead, they are treated as tax already paid on account by your company. The key difference compared with sole traders is the route used to reconcile these deductions. A sole trader generally deals with CIS through a personal Self Assessment tax return. A limited company does not use Self Assessment for this purpose. Instead, CIS suffered must be recorded via the company PAYE payroll submissions, and any overpaid amount is later reclaimed.

How CIS affects limited companies in practice?

In practice, a limited company acting as a subcontractor issues an invoice for labour and, in some cases, for materials. The contractor applies CIS only to the labour element and pays the company net of the applicable deduction. Your company then needs a reliable method to record the deduction and to report it through payroll using the Employer Payment Summary, frequently called the EPS. 

When the EPS is filed, the CIS suffered figure reduces your monthly PAYE and National Insurance liabilities. If the CIS suffered is higher than the amount you owe for that month, the excess carries forward as a credit on your PAYE account. At the end of the tax year, any unused credit can be reclaimed by making a repayment claim through HMRC.

Large contractor clients versus small subcontractor only companies

At A2Z Accounting Solutions we typically work with two distinct groups of limited company clients under CIS. The first group is larger contractor businesses that run payroll every month because they employ teams of staff and pay other subcontractors. For these companies, both CIS suffered on income and CIS deducted from payments to subcontractors are processed within payroll on a monthly cycle. 

Handling both sides within payroll keeps the PAYE account accurate, allows real time offsetting, and reduces year end reconciliation issues. It also supports better cash flow because credits generated by suffered deductions immediately reduce the monthly PAYE payment.

The second group is smaller subcontractor only companies. These businesses may have only directors on minimal salaries or may not run payroll regularly at all. They still suffer CIS deductions on the income they receive from contractors, and those deductions still need to be reported to HMRC. Because they are not making large monthly PAYE payments, they often build up a credit that must be reclaimed after the tax year ends. For this group, disciplined record keeping is essential. 

We recommend a simple spreadsheet that lists each payment received, the labour amount, any materials, the CIS deducted, the contractor, the date, and the related Payment and Deduction Statement, often called a PDS. Every March, provide that spreadsheet and copies of PDS documents to our team so we can include the full year figure in the final payroll submission for the tax year.

CIS runs on the tax year, not your accounting year

A frequent source of confusion is the difference between the HMRC tax year and a company accounting year. CIS follows the tax year that runs from six April to five April. It does not follow your company’s financial year end. If you suffered deductions up to five April, you may claim those amounts from six April onward, provided the figures have been correctly reported via payroll. Any deductions suffered after six April fall into the next CIS year and will be part of the following claim. Keeping this rule in mind helps you avoid mixing periods and prevents rejected claims.

Should you report CIS suffered monthly or once at year end

HMRC allows you to include CIS suffered on your Employer Payment Summary whenever you file it. Although some companies wait until the final EPS in April to report the total, best practice is to report every month. Monthly reporting keeps your PAYE account accurate, enables in-year offsetting against PAYE and National Insurance liabilities, and usually speeds up repayment after year end. If you are registered for PAYE and you attempt to claim a refund without having reported the CIS suffered through EPS, HMRC will normally delay or reject the claim because their PAYE records do not show the figures.

How to claim a CIS refund as a limited company?

The steps you take depend on whether you run a PAYE scheme. If you are registered for PAYE, report CIS suffered on your monthly EPS throughout the year. After the tax year ends on five April, reconcile your account and submit a repayment claim for any balance that has not been used to offset PAYE and National Insurance. You can usually do this through your business tax account, often referred to as your Government Gateway. If you are not registered for PAYE at all, you cannot file an EPS. In that situation you wait until after five April and submit a direct claim, supported by PDS evidence and company details. Either route benefits from clean records and totals that match contractor submissions.

Clients often ask how long repayments take. HMRC guidance suggests a window of several weeks, and in our experience a complete and consistent claim tends to be processed faster than one that contains gaps or mismatches. Delays typically arise when the totals on your spreadsheet do not agree with PDS statements or when what the contractor reported to HMRC does not match your copy. To minimise delays, reconcile each PDS to your bank receipts, keep a running monthly total, and let us review your schedule before year end.

Record keeping that HMRC will accept

Strong record keeping is the foundation of a successful CIS process. Maintain a spreadsheet with columns for invoice number, date of payment, contractor name, labour amount, materials amount, gross payment, CIS deducted, and net received. Attach the PDS for each payment and store them in month by month folders. If a contractor corrects a figure in a later month, keep both the original and the corrected statement and note the adjustment clearly in your spreadsheet. 

When March arrives, send the full year schedule and copies of all PDS documents to A2Z Accounting Solutions. We will check that totals match, post any corrections, and ensure your final payroll submission contains the correct annual figure.

Gross Payment Status explained

Gross Payment Status, often shortened to GPS, allows a subcontractor to be paid in full without CIS deductions being taken by contractors. If your company is approved, cash flow improves because you receive one hundred percent of your invoice values and account for tax later through Corporation Tax. Eligibility depends on compliance and business substance. HMRC expects evidence that returns and payments are up to date, that turnover meets the relevant thresholds, and that the company operates a UK bank account.

Whether GPS is right for you depends on your revenue profile and your ability to keep tax payments on schedule. Some companies prefer the discipline of deductions because it prevents unexpected liabilities at the year end, while others benefit from the cash flow of gross receipts. Our team can assess eligibility, prepare the application, and help you design payment plans so that Corporation Tax obligations are met without strain.

A simple month by month checklist

Issue invoices that separate labour and materials. Collect Payment and Deduction Statements from each contractor promptly. Post receipts to your accounts and tick off the PDS against each payment. Update your CIS spreadsheet with the deduction for that month. File the Employer Payment Summary and include the CIS suffered figure. Repeat this process every month. 

In March, reconcile the full tax year from six April to five April, provide the schedule and PDS documents to us, and we will ensure the final payroll submission reflects the correct totals. After five April, submit or authorise the repayment claim through your business tax account, or ask us to handle the claim on your behalf.

How A2Z Accounting Solutions supports your CIS workflow?

We provide an end to end service for limited companies working under CIS. This includes setting up payroll so CIS suffering can be reported correctly, training your team on the monthly checklist, preparing and reviewing your annual schedule each March, and preparing repayment claims. 

For contractor businesses, we also help with verification of subcontractors, recording CIS deducted correctly, and meeting monthly reporting obligations. If you are considering applying for Gross Payment Status, we will help you evaluate the benefits, check eligibility, and submit a strong application.

Conclusion and Next steps

CIS for limited companies can feel complex at first, but once you understand that everything flows through payroll and that the tax year runs from six April to five April, the process becomes manageable and predictable. Focus on clean records, monthly EPS reporting, and timely March handovers. Use your Government Gateway to submit claims after year end or authorise A2Z Accounting Solutions to do it for you. If cash flow is a priority, discuss Gross Payment Status with us and we will guide you through eligibility and application. With clear systems and expert support, you will protect your cash, minimise HMRC queries, and ensure every pound deducted under CIS is returned or offset as quickly as possible.

FAQs

Q: Do I need to report every month or can I wait until April?

A: You can wait until the final EPS, but monthly reporting is strongly recommended because it reduces queries and speeds up repayments. 

Q: What happens if I am registered for PAYE but I did not report CIS suffered on EPS during the year?

A: You should update the records as soon as possible. Claims that do not match PAYE submissions are likely to be delayed. 

Q: Can I include materials in the CIS calculation? 

A: CIS is applied to the labour element only. Materials should be itemised clearly on your invoices to avoid over deductions. 

Q: Can A2Z Accounting Solutions submit the claim for me?

A: Yes, we can manage the process for a modest fee, including setting up access to your business tax account if you do not already have it.