You’ve set up your limited company. Now someone’s told you that you need to register for CIS. Do you?
The answer depends on whether you’re paying subcontractors or getting paid as one. Let’s cut through the confusion and give you the straight answer about limited company CIS requirements.
If Your Limited Company Is a Contractor
If your limited company pays subcontractors for construction work, registration is obligatory.
You must register as a CIS contractor if you pay subcontractors for construction work, regardless of your company’s main business activity. Even if you’re primarily a property developer, retailer doing shop fits, or energy company doing installations, once you’re paying subbies, you’re a contractor under CIS.
Something called the £3 million rule catches businesses that don’t think of themselves as contractors. If you spend more than £3 million on construction in any rolling 12-month period, you become a “deemed contractor” and must register within 30 days of exceeding that threshold. This applies even if construction isn’t your main business: housing associations, retailers, property companies all get caught by this.
What registration means in practice:
Once registered, you must verify every subcontractor with HMRC before making the first payment. You’ll deduct CIS at the correct rate: 20% for registered subcontractors, 30% for unregistered ones. You must file monthly CIS returns showing who you’ve paid and how much you’ve deducted. And you must keep proper records of all payments and deductions.
Fail to register when you should have and you’ll face penalties. Fail to operate the scheme correctly and you could be liable for the tax you should have deducted plus interest and penalties.
If Your Limited Company Is a Subcontractor
Here’s where it gets more interesting. If your limited company works as a subcontractor, registration is optional/ But we think you’d be daft not to do it.
Why you should register:
The deduction rate tells the whole story. Registered subcontractors have 20% deducted from their invoices. Unregistered subcontractors lose 30%. That’s an extra 10% sitting in your pocket every month rather than being deducted upfront.
Beyond the money, being registered makes you more attractive to contractors. Some simply won’t work with unregistered subbies because the higher deduction rate makes their admin more complicated. Being registered shows professionalism and compliance, not a business flying under the radar.
How CIS deductions work for limited companies:
When you invoice a contractor, they deduct 20% (if you’re registered) from the labour element of your invoice. Materials are excluded from the deduction. Those deductions aren’t lost money as they count as advance payments toward your corporation tax liability.
When you file your company tax return, you offset the CIS deductions against your corporation tax bill. If you’ve overpaid – which often happens if you’ve had significant deductions but your actual corporation tax liability is lower – HMRC refunds the difference. Think of it as paying your corporation tax throughout the year rather than in one lump sum.
Gross Payment Status: The holy grail
There’s a third option: Gross Payment Status. Limited companies can apply for GPS, which means contractors pay you in full without making any deductions. It’s the best of both worlds — the cashflow benefit of receiving full payment upfront, combined with the professionalism of being properly registered.
To qualify, you must meet the turnover test: £100,000 company turnover or £30,000 per director in the previous 12 months. You must also pass a compliance test showing you’ve met your tax obligations. GPS isn’t automatic, but for established limited companies with good compliance records, it’s achievable.
Common Misconceptions About CIS and Limited Companies
Let’s kill a few myths while we’re here.
“CIS registration means I’m self-employed”: No. CIS is a tax collection scheme, not an employment status designation. You can be registered for CIS and still be caught by IR35 if you’re working like an employee.
“I’m registered for CIS so HMRC won’t question employment status”: Wrong again. CIS and employment status are completely separate issues. Being registered for CIS doesn’t protect you from IR35 investigations or employment status challenges.
“Limited companies don’t have employment status issues”: False. IR35 specifically applies to limited company contractors. If you’re working through your limited company but operating like an employee, IR35 catches you regardless of your CIS status.
The Bottom Line
If your limited company pays subcontractors, you must register as a contractor. If your limited company works as a subcontractor, you should register to get the lower deduction rate and look professional. Once established, consider applying for Gross Payment Status.
But don’t assume getting CIS right is the end of your compliance obligations. We specialise in helping construction businesses navigate both compliance and employment status issues properly. Get in touch to find out how we can help.