A limited company that suffers Construction Industry Scheme deductions does not reclaim them on its Corporation Tax return. During the tax year it sets them against what it owes HMRC through its payroll, reported on the Employer Payment Summary (EPS). Any deductions still unused after 5 April can be repaid or used against Corporation Tax or VAT, but only through a separate claim to HMRC.

Why can a company not just claim CIS deductions on its tax return?

For a sole trader or partner, CIS deductions are simply tax paid in advance and are credited through the Self Assessment return. Companies work differently. Section 62(3) of the Finance Act 2004 says deductions made from a company subcontractor are first treated as paid on account of its “relevant liabilities”: the PAYE, National Insurance, student loan deductions and CIS deductions it owes HMRC as an employer or contractor. Only the excess left after those liabilities can be treated as Corporation Tax paid or repaid (CISR72010 and CISR76010).

HMRC’s gov.uk guidance is blunt: do not use the Corporation Tax return to pay tax with CIS deductions, as a penalty may follow. The company’s return shows the full profit and the Corporation Tax due, and the CIS credit is dealt with separately. How the deductions should be recorded in the books is covered in our guide to bookkeeping for CIS.

How does the in year set off work?

Each month the company sends its Full Payment Submission as usual and, at the same time, an EPS showing the total CIS deductions suffered in the tax year to date. HMRC reduces the payroll bill by those deductions and the company pays any balance by the normal date. Regulation 56(2) of the Income Tax (Construction Industry Scheme) Regulations 2005 sets the order of set off:

  1. primary Class 1 National Insurance on employees’ earnings
  2. secondary Class 1 National Insurance
  3. PAYE income tax deducted from employees
  4. student loan deductions
  5. amounts due back to HMRC on recovered statutory payments, such as statutory sick pay or maternity pay
  6. CIS deductions the company has itself made from its own subcontractors

If deductions exceed the liabilities for a month, the excess is carried forward to later months, but only within the same tax year. The company tells HMRC on the EPS that it has nothing to pay. It must keep a record of the deductions used each month, for which HMRC offers form CIS132, and keep every monthly payment and deduction statement it receives from contractors. Contractors must issue these within 14 days of the end of each tax month.

When can the company claim a repayment?

CISR76020 confirms there is no company equivalent of the in year repayment available to sole traders. Regulation 56(5) stops HMRC repaying a company until the tax year in which the deduction was made has ended. Before claiming the company must have submitted all its Full Payment Submissions and EPS returns, its monthly CIS returns if it is also a contractor, and its Company Tax Returns. Claims for the past six tax years can be made online using the sign in details linked to the company’s Corporation Tax and PAYE accounts; older years must be claimed by post.

A claim before the tax year ends is possible in only three situations: the business has stopped trading, the company has gone into liquidation or administration, or deductions were taken after the company obtained gross payment status. These claims must include copies of every payment and deduction statement and bank statement for the year.

What does a repayment claim need?

The key figure is the overpayment: total CIS deductions suffered in the tax year less the total already used against PAYE and the other relevant liabilities. HMRC’s guidance on claiming a refund as a limited company says to work it out from the payment and deduction statements, the FPS and EPS records and, where relevant, the company’s own CIS returns, and to give an estimate if unsure. The claim also needs:

  • company name, address and telephone number
  • the employer PAYE reference and Corporation Tax unique taxpayer reference
  • bank details for the repayment, or form R38 or a signed authority if an agent is to be paid
  • evidence such as statements and bank statements if the company knows its figures will not match the contractor’s returns

HMRC first uses the deductions to clear any overdue PAYE or Corporation Tax. What is left can be repaid, or set against an upcoming Corporation Tax bill for a named accounting period, or against VAT. Regulation 56(6) also lets HMRC retain an amount needed for Corporation Tax for an accounting period ending before the relevant payment was made. HMRC aims to respond within 8 weeks, and a repayment is treated as tax repaid for the PAYE repayment supplement rules under regulation 56(4).

What if HMRC disputes the claim?

HMRC checks the claim against what contractors have reported on their monthly returns. If they do not match, HMRC may ask for evidence or ask the company to change its claim. If the company does not respond by the deadline, HMRC can amend the claim on the information it holds, and the company cannot make further claims for that tax year. The decision can be appealed.

Mismatches usually come from the contractor side. A common case, described at CISR77010, follows incorporation: the contractor keeps paying under the director’s old sole trader or partnership UTR, so the deductions the company has set off against its PAYE are recorded on the director’s personal CIS record instead. Telling every contractor about the new company, and making sure it is verified in the company’s own name, avoids this. Other causes are a contractor quoting the wrong reference or failing to file its monthly return. If a contractor will not or cannot supply statements, for example because it has ceased trading, the company can write to HMRC with the contractor’s name, address and reference if known, the dates of payment and the reason the statements are missing.

How does it work in figures?

Illustration only. A groundworks company is paid £10,000 a month by a main contractor after deduction at 20%, so it suffers £2,000 a month, £24,000 for the year. Its own payroll liability for PAYE and National Insurance is £1,200 a month.

Step Amount
CIS deductions suffered in the tax year £24,000
Used against payroll liabilities (£1,200 x 12) £14,400
Unused at 5 April £9,600

Each month the EPS shows the cumulative deductions and the company pays nothing to HMRC for payroll. After 5 April, once all returns are filed, it claims the £9,600. If Corporation Tax for the year ending 31 March is due on 1 January, the company can ask HMRC to use the £9,600 against that bill instead of taking a repayment and paying the tax separately. The surplus cannot be rolled forward to cover the next tax year’s payroll.

What mistakes cost companies time or money?

  • Deducting CIS suffered on the CT600 or in the Corporation Tax computation, which HMRC warns can lead to a penalty.
  • Not sending an EPS each month, so HMRC chases unpaid PAYE while the deductions sit unused.
  • Carrying a surplus into a new tax year instead of claiming it.
  • Claiming before all PAYE, CIS and Corporation Tax returns are filed, which delays the repayment.
  • Not reconciling statements to the contractor’s figures, especially where VAT and materials should have been excluded from the deduction.
  • Letting deductions build up where the company could qualify for gross payment status.

Where the company also pays subcontractors or charges VAT under the domestic reverse charge, its own CIS returns and VAT records will form part of any HMRC check. The general scheme rules are in our guide to the Construction Industry Scheme, and HMRC compliance activity in the sector is discussed in our page on construction contractors.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.