If your company is a subcontractor under the Construction Industry Scheme, your customers deduct 20% (or 30% if you're unverified) from the labour element of every payment and hand it to HMRC on your behalf. That money is yours. The question is when you get it back.
The two ways to recover CIS suffered
A limited company can set CIS deductions suffered against its monthly PAYE, National Insurance and its own CIS liabilities through the Employer Payment Summary. Whatever is left at the end of the tax year is reclaimed from HMRC.
The problem is that a lot of companies only do the second part. They pay PAYE in full every month, then reclaim a large lump at year-end, usually several months after the year has ended. That's an interest-free loan to HMRC running into tens of thousands of pounds for a mid-sized subcontractor.
What monthly offset looks like
| Month | PAYE due | CIS suffered | Paid to HMRC |
|---|---|---|---|
| April | £9,400 | £7,100 | £2,300 |
| May | £9,400 | £11,800 | £0 (£2,400 carried forward) |
| June | £9,400 | £6,200 | £800 |
Over a year that's the difference between reclaiming £90,000 in the following October and simply never paying it in the first place.
What you need in place
- Payment and deduction statements from every contractor, every month
- A reconciliation of CIS suffered to those statements before the EPS is filed
- Your PAYE reference on every EPS, and the CIS suffered figure reported cumulatively
If you're a sole trader or partnership, none of this applies: your CIS is set against your self-assessment liability. It's one of the better arguments for incorporating a growing subcontractor business.
Gross payment status
The longer-term answer is to apply for gross payment status, so nothing is deducted at all. You need to pass turnover, business and compliance tests, and keep passing the compliance test every year. We help clients apply and, more importantly, keep it.
This article is general guidance and not advice on your circumstances. Talk to your accountant before acting on it.
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