If you are a construction subcontractor running through a limited company, the chances are HMRC is sitting on a chunk of your money right now. CIS deductions taken at 20% (or 30% if you are not registered) at the point each contractor pays you almost always exceed your real corporation tax and PAYE liability for the year. The difference is yours. You just have to claim it back the right way.
This post explains how the limited company CIS refund mechanism works, what records you need, where most claims get stuck, and the single change that improves cash flow more than anything else: gross payment status.
What CIS actually does to a limited company.
The Construction Industry Scheme (CIS) requires the contractor paying you to deduct tax at source from your labour invoice and pay it directly to HMRC on your behalf. For a registered subcontractor that rate is 20%. If you are not registered with HMRC for CIS, the rate jumps to 30%. Materials are excluded if invoiced separately and clearly identified.
For a sole trader, those CIS deductions sit against the personal income tax bill and any overpayment is refunded through self-assessment. For a limited company, the route is different and the cash sits with HMRC for longer if it is not handled tightly.
How a limited company reclaims CIS.
A construction Ltd company cannot put the CIS suffered against its corporation tax bill directly. The mechanism HMRC uses is offset against the company's PAYE and National Insurance liability each month, declared through the Employer Payment Summary (EPS).
There are three steps:
- Each tax month, you submit an EPS to HMRC declaring the CIS deductions you have suffered that month, supported by the deduction statements from each contractor.
- HMRC offsets the CIS suffered against your PAYE and NIC bill for the same period. If the CIS exceeds the PAYE liability, the surplus carries forward inside the tax year.
- After the tax year ends on 5 April, any remaining CIS surplus is repaid as a cash refund. The claim is made by writing to HMRC's CIS team or using the online service, with reconciled records attached.
The claim is processed alongside corporation tax. If the company has corporation tax due, HMRC will offset the CIS surplus against it first, and only refund the balance.
Why most refunds get stuck.
HMRC will not release a refund until the numbers reconcile. The three records that have to match are:
- The CIS deductions reported on your monthly EPS submissions
- The CIS deductions reported by your contractors on their CIS300 returns
- The CIS payment and deduction statements you have on file from each contractor
If any one of those is missing or out of step, the claim sits in HMRC's review queue. We routinely see Ltd companies waiting eight to ten months for a refund because a contractor never sent through a single deduction statement, or because the EPS was submitted as a nil return when CIS had actually been suffered. The work to fix it is administrative — phone calls, copies of statements, an amended EPS — but it adds months.
The cleanest way to avoid this is to chase the deduction statement from every contractor at the end of every tax month. Do not wait until April. By the year-end you should already have twelve clean statements on file and the EPS submissions matching them line for line.
Gross payment status — the cash-flow lever.
The single biggest improvement a construction Ltd company can make is to apply for gross payment status. With gross status, contractors pay your invoices in full without any CIS deduction. You still owe corporation tax, PAYE and VAT in the normal way, but the cash comes to you first instead of being held by HMRC for the rest of the tax year.
For a single-director company turning over £80,000 of net labour, the cash held by HMRC at any given point can comfortably exceed £8,000. Gross payment status removes that drag entirely.
To qualify, HMRC sets three tests:
- Business test. The company must run a genuine construction business through bank accounts in the company name, with proper invoicing.
- Turnover test. Net construction turnover (excluding VAT and materials) of at least £30,000 for a single director company. Multiply by the number of directors for higher thresholds.
- Compliance test. The company must have submitted every PAYE, VAT, corporation tax and self-assessment return on time over the last twelve months, and paid every liability on time too. One late corporation tax payment is enough to fail.
The compliance test is where most applications fall over. The fix is straightforward but slow: tighten up filing and payment for twelve consecutive months, then apply. Once granted, HMRC reviews compliance every twelve months. Slip on filings and the status can be withdrawn.
What good looks like in practice.
For a Barton client running a construction Ltd company under standard CIS deductions, our process is:
- Xero set up with CIS bills and CIS sales tracking switched on, so every contractor invoice and every deduction is recorded in real time.
- Monthly bookkeeping reconciles the bank, captures every CIS deduction, and produces the EPS figures.
- Monthly EPS submission reports CIS suffered to HMRC, supported by the statements collected from contractors.
- Quarterly check-in reviews whether gross payment status is now within reach, and tracks the running CIS surplus.
- Year-end claim filed alongside the company accounts and corporation tax return, with all reconciliations attached so HMRC has nothing to query.
The result for most of our Ltd subbies is a refund settled within four to eight weeks of the year-end claim, and a working cash position that is no longer a function of how quickly HMRC moves.
Ashby, Swadlincote, Burton, Coalville — local CIS practice.
The construction sector across the East Midlands runs heavy on CIS. Tradespeople working through Ltd companies are common across our patch — Ashby-de-la-Zouch, Swadlincote, Burton upon Trent, Coalville, Woodville and Church Gresley. We act for groundworkers, electricians, joiners, plasterers, scaffolders, roofers and general builders. The CIS refund mechanic, gross payment status applications, and the bookkeeping discipline that supports both are bread and butter for the firm.
If your construction Ltd company is more than a few months past year-end and you have not yet seen the refund in the bank, something has gone wrong with the claim. Talk to us and we will tell you exactly where it is stuck and what it takes to release it.
If you are a construction Ltd company that has not applied for gross payment status, your single biggest cash-flow improvement is sitting on HMRC's website. It takes twelve months of clean filings and an online application.
Frequently asked questions
How does a limited company reclaim CIS deductions?
Through the EPS each month, offsetting CIS suffered against PAYE and NIC. Any surplus at the year-end is reclaimed in cash from HMRC.
How long does an HMRC CIS refund take?
Four to twelve weeks once the year-end claim is filed and the records reconcile with the contractor CIS300 returns. Mismatches push it out to many months.
What records do I need to claim a CIS refund?
A CIS payment and deduction statement from every contractor for every tax month, your monthly EPS submissions, your PAYE records, and the company accounts.
Can I get gross payment status to avoid CIS deductions?
Yes. The company has to pass HMRC's business, turnover and compliance tests. The compliance test is the most demanding — twelve clean months of returns and payments. Once granted it removes CIS deductions on labour invoices entirely.