How to claim your CIS tax back as a limited company
Your company has had 20% taken off every labour invoice all year. The money is yours, it is sitting with HMRC, and you want it back. But the route a limited company has to take is completely different from the one a sole trader uses, and getting it wrong is the single most common reason these claims stall. So how do you claim your CIS tax back, and why do so many companies wait months for it?
How much CIS tax is deducted in the first place?
Contractors deduct at one of three rates:
- 20% if you are registered with HMRC as a subcontractor
- 30% if you are not registered, or HMRC cannot match your details
- 0% if you hold gross payment status
The deduction is taken from the labour element only. Materials you paid for directly, hired plant, fuel used on site, consumables and VAT all come out of the figure first.
Warning! That 30% rate is not a penalty you can argue about after the event. If a contractor verifies you and HMRC cannot match your company to its records, 30% applies. On £150,000 of labour that is £45,000 gone instead of £30,000. Check your company is correctly registered as a subcontractor before you invoice, not after.
Why can’t a company just claim it on the Corporation Tax return?
Because HMRC will penalise you for it.
CIS deductions suffered by a limited company are employment taxes, not Corporation Tax. They have to be recovered through the payroll system. HMRC states plainly that you should not claim them through the Corporation Tax return and that you may get a penalty if you do.
This trips up a surprising number of businesses whose accountant treats the company like a sole trader.
What is the correct process?
You reclaim through the Employer Payment Summary, or EPS.
- Run payroll and file your Full Payment Submission as normal. 2. File an EPS showing the total CIS deductions for the year to date. This is a cumulative figure, not the month’s figure on its own. Getting this wrong is a frequent cause of mismatches. 3. HMRC sets the deductions against what you owe on the PAYE scheme. Pay only the balance. 4. Anything left over carries forward to the next month or quarter within the same tax year.
The EPS deadline is the 19th of the following tax month.
The set off runs in a fixed order: PAYE tax and National Insurance for your employees first, then student loan repayments, then any CIS deductions you owe on your own subcontractors.
Example. Aztec Interiors Ltd suffers £4,000 of CIS deductions in May and owes £1,500 of PAYE and NI for its two employees. It files an EPS showing £4,000 year to date, pays nothing across to HMRC that month, and carries the remaining £2,500 forward. By November the cumulative deductions have cleared every PAYE liability for the year, and the company has funded seven months of payroll out of money it would otherwise have been waiting on.
What if there is still money left at the end of the year?
Anything you have not absorbed through payroll is repaid after the tax year ends. You claim online through your Government Gateway account, or by post.
Two conditions have to be satisfied before HMRC will pay:
- the tax year has ended, and
- your company has paid everything it owes as an employer and as a contractor
Note. Do not submit the claim before 5 April. HMRC warns that filing early means its records may not yet show all your deductions, which produces either a delay or an incorrect payment. Wait, then claim.
Why do these claims get delayed?
From what we see, and from what HMRC’s own guidance and manuals confirm, the recurring causes are:
Returns outstanding. Every relevant PAYE, CIS and Corporation Tax return has to be in. One missing return holds the whole claim.
The EPS figure exceeds what HMRC’s system shows. This usually means a contractor has not filed its monthly return, or your company is not registered as a subcontractor. HMRC will then ask for every payment and deduction statement, cross referenced to bank statements, and will restrict the claim to what it can verify.
Deductions logged against the wrong UTR. This is the classic incorporation problem. You move from sole trader to limited company, the contractor is never told, and deductions keep landing on your old personal UTR. If the contractor genuinely did not know the company existed, HMRC can reduce those deductions to nil.
Manual checking. HMRC has acknowledged a backlog on limited company CIS repayment claims because they are checked by hand to guard against fraud.
Tip. Keep every payment and deduction statement as it arrives and reconcile it to your bank monthly. If HMRC asks for evidence twelve months later, you either have it or you lose the money. There is no third option.
What should you do next?
Reconcile your CIS deductions against your bank monthly rather than annually. Confirm your company is registered as a subcontractor under the company UTR. Make sure your EPS carries the cumulative figure, and never submit the year end claim before 5 April.
Most accountants file the return. The reason our clients recover this money faster is that we look at it as tax advisers first, and we know where HMRC’s checks land because we have worked inside HMRC. When a claim is queried, the difference between a fortnight and six months is whether the evidence was assembled before the question was asked.
If your CIS repayments are slow, or you are not certain the claim is being made correctly, speak to a Chartered Tax Adviser. You can read more on our Construction Industry Scheme page, and see a real £84,000 recovery in our tax saving case studies.