How do the deductions actually work?
Under CIS, the contractor who pays you deducts money from your company's payments and passes it to HMRC. Those deductions count as advance payments towards tax and National Insurance. The scheme covers most building work: site preparation, alterations, repairs, decorating, demolition and similar jobs.
Here is the sum with real numbers. Say your company invoices a contractor £10,000 for labour. Your company is registered for CIS, so the contractor deducts 20%, which is £2,000, and sends it to HMRC. Your company's bank account receives £8,000.
Now the part that trips people up: your company still earned the full £10,000. The £2,000 did not vanish and it is not a cost of doing the job. It is your company's own money, sitting with HMRC as an early payment towards tax. Think of the invoice as fully paid, just to two places: £8,000 to your bank, £2,000 to HMRC.
If your company is not registered for CIS, the contractor must deduct 30% instead, so the same invoice would arrive £3,000 short rather than £2,000. Registering is the single easiest way to keep more cash in the business month to month.
How does my company get the deducted money back?
This is the bit that is different for limited companies, and it matters. A sole trader gets CIS deductions back through their personal Self Assessment tax return. A limited company does not. Your company claims its CIS deductions back through its monthly payroll scheme, and gov.uk is blunt about the wrong way: do not try to claim them back through your Corporation Tax return, because you may get a penalty if you do.
In plain English, the payroll route works like this. Each month, alongside the normal payroll report your company sends HMRC, it also sends a short summary showing the total CIS deductions taken from it so far that year. HMRC then knocks that amount off what your company owes in PAYE tax and National Insurance, and you pay the smaller balance. If, by the end of the tax year, contractors have deducted more from your company than it owed through payroll, HMRC pays the leftover amount back.
If that last paragraph sounds like a job for whoever runs your payroll, you have understood it perfectly. It is a monthly payroll task, not something you fix once a year.
What if my company hires subcontractors too?
Plenty of small firms are on both sides of CIS: paid by a main contractor one week, paying a subbie the next. If your company pays subcontractors for construction work, it must register with HMRC as a contractor before taking on its first subcontractor, check each subcontractor's status with HMRC before paying them, make the right deductions and pass them to HMRC, and file a return every month. HMRC can charge penalties if the monthly returns and records are not kept up. It is regular, deadline-driven admin, and if it is new to you, an accountant or payroll provider is a sensible place to hand it.
What is gross payment status?
Some companies can apply to be paid in full, with no deductions taken at all. That is called gross payment status. Your company pays all its tax at the end of the year instead of having it collected in advance. To qualify, your company needs to show HMRC it has paid its tax on time in the past, does construction work in the UK, and is run through a bank account, and it must clear a turnover test. HMRC keeps an eye on the status once granted, so staying on top of tax deadlines is part of keeping it.
Where does CIS meet my Company Tax Return?
Two careful points for when your accounts and Company Tax Return get done.
First, your company's income is the gross figure. In the example above, the books show £10,000 of income, not the £8,000 that landed in the bank. Second, the £2,000 deduction is not an expense of the business. It is money already handed to HMRC on your company's behalf, and it gets credited back through the payroll route described above, not through the Company Tax Return itself. If deductions have been claimed in the wrong place, or your bookkeeping shows the net amounts, the exact tidying up is genuinely a job for an accountant, and we would rather say that plainly than pretend otherwise.