The Construction Industry Scheme (CIS) is often thought of as something meant only for sole traders, but did you know that plenty of people working via their own limited companies also operate under this scheme?
In this pitstop guide, we’ll explain how the CIS rules for limited companies work.
CIS rules for limited companies explained
The CIS for limited company subcontractors works much like it does for sole traders, but with a key difference.
If you work through your own limited company, CIS deductions can be offset against the company’s Corporation Tax liability rather than personal tax, which is the case for sole traders.
This is because the contractor will be making the payment to the subcontractor’s limited company, not the individual themselves.
How CIS for limited companies works in practice
Because of the flexibility working through a limited company offers, there are a few scenarios of how CIS works, and where a CIS refund may come into the equation.
You carry out the work yourself
Let’s say you operate through your own limited company, carrying out the work for the contractor yourself – in other words, you don’t subcontract it out.
Your contractor, or hirer will deduct the CIS deductions before paying your limited company, as well as file a monthly report to the HMRC to show what deductions they have made in total.
- You will include the CIS deductions suffered on your Employer Payment Summary (EPS) to HMRC throughout the year, as part of your normal payroll process.
At the end of the tax year you will submit your Final Payroll Submission (FPS) to HMRC, and then complete an online application to HMRC who will offset any CIS you have been deducted against your Corporation Tax.
- Any CIS credit left over will be refunded to your company.
You’re the ‘contractor’
This is when your business pays subcontractors to do the work and there’s no other contractor in the arrangement.
You will deduct any CIS due from the subcontractors pay/invoice.
- Your limited company needs to report monthly to HMRC the amount of CIS you’ve deducted from the subcontractors engaged (whether sole traders or limited company subcontractors).
- Your business is required to make the CIS payments monthly to HMRC as part of your company’s PAYE processes.
You do some of the work and engage subcontractors
Finally, let’s imagine you carry out some of the work for the contractor, but also engage the help of subcontractors to support you.
- The contractor will make CIS deductions before paying your limited company.
- Your company will then deduct CIS from payments made to the subcontractors.
- How much of a CIS refund your limited company is due (or the amount it needs to pay HMRC) is the difference between these two figures.
Find out more
To find out if your limited company is owed a tax refund and to have an expert take care of this, simply get in touch with us.
