Construction Industry Scheme and CIS Refund in a Limited Company
Both the contractor and subcontractor must be a taxpayer. Contractor through his self employed form of business or through a limited company registered under the Construction Industry Scheme will have to deduct a certain percentage of amounts from the payment to their subcontractors. Subcontractors will adjust the deductions against their year-end income tax liability due to HMRC.
If the subcontractor is registered under CIS, the contractor will deduct at 20%, however, if the subcontractor is not registered with CIS, the deduction will be at 30%.
The contractor accounting team pays those deductions to HMRC along with any other PAYE liability/refund for the month.
A subcontractor, on the other hand, can apply for “gross payment status” by which they can be exempt from any deductions made by the contractor.
In case your contractor deducts your taxes while you are registered as a limited company under CIS, then HMRC will return the due amount directly to your company at the end of the year. If you have your own employee for which you have liability to HMRC you can adjust the CIS suffered against your liability.
There are three conditions that change how a contractor can deduct the taxes. We will discuss them in detail below.
If Your Limited Company is only a Subcontractor
Being a subcontractor through a limited company- if you suffered CIS and your limited company is registered under CIS and you have no other subcontractor working under you, then you can get a CIS refund suffered from HMRC at the year-end.
Your contractor will have to submit a monthly report to HMRC stating all the deductions they made from your payments. Your company will then submit EPS (Employment Payment Summary) to HMRC in which you will include your deducted amount by your contractor for each of the month. At the end of the tax year, after submitting an online form through the government website, HMRC will either return the full amount or deduct the tax for your limited company and refund the rest.
When Your Limited Company is a Contractor
If your limited company has its subcontractors – In this case, you will have to submit a monthly report which includes all the CIS refund deductions you made from your subcontractor’s payments. The report must include every deduction in detail and should be about any individual or business you employed under the CIS scheme.
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If Your Company is both, Contractor and Subcontractor
If your limited company has a contractor and at the same time has some subcontractors working, then there will be multiple situations. Your contractor will make your construction industry scheme deductions, and you will make CIS deductions from your subcontractor’s payment. Both will submit the monthly report to HMRC and then expect a net refund from HMRC at the year end.