How to Reclaim CIS Deductions Through Payroll

Why Reclaim Through Payroll?

If your limited company works as a subcontractor in the construction industry, CIS deductions are taken from your payments by contractors. Unlike sole traders who reclaim through Self Assessment, limited companies reclaim CIS deductions by offsetting them against their PAYE and National Insurance obligations.

This is actually more advantageous than Self Assessment because you can reclaim the money monthly rather than waiting until the end of the tax year.

How the Offset Works

Each month, your company calculates its PAYE and National Insurance liability from running payroll. Instead of paying the full amount to HMRC, you deduct any CIS suffered during that period.

Example

• Monthly PAYE and NI due to HMRC: £2,500
• CIS deductions suffered during the month: £1,800
• Amount to pay HMRC: £700

If your CIS deductions exceed your PAYE liability in any month, you can carry the excess forward to the next month or apply for a refund from HMRC at the end of the tax year.

Step-by-Step Process

1. Record All CIS Deductions

Keep all CIS payment and deduction statements from your contractors. These show the gross payment, materials, deduction amount, and the contractor's details.

2. Include CIS on Your Employer Payment Summary (EPS)

When you submit your monthly payroll to HMRC via Real Time Information (RTI), you include the CIS deductions on the Employer Payment Summary. The EPS tells HMRC how much CIS to offset against your PAYE account.

Your payroll software should have a field for CIS deductions suffered. Enter the total from your statements for that period.

3. Reduce Your PAYE Payment

Pay HMRC the net amount — your PAYE and NI liability minus the CIS deductions. HMRC expects this and will reconcile based on your EPS submission.

4. Reconcile at Year End

At the end of the tax year (5 April), HMRC reconciles your PAYE account. If there is an excess of CIS deductions that could not be offset against PAYE, you can claim a refund.

What If You Have No Employees?

If your company has no employees (or only minimal payroll — such as a single director taking a small salary), your monthly PAYE liability may be too small to absorb the CIS deductions.

In this case:

• Offset what you can each month
• Carry forward the excess
• Apply for a refund at the end of the tax year through HMRC's CIS repayment process

Alternatively, you can offset the excess against Corporation Tax, but this is slower because you must wait until you file your Corporation Tax return.

Claiming a Refund from HMRC

If you have excess CIS deductions at the end of the tax year, you can apply for a refund by writing to HMRC or through your HMRC online account. You will need to provide:

• Your company's PAYE reference
• The total CIS deductions suffered
• The total PAYE and NI paid
• Copies of CIS payment and deduction statements

HMRC typically processes refunds within 4 to 6 weeks, though it can take longer if they need to carry out checks.

Common Mistakes

Not Reporting CIS on the EPS

If you do not include CIS deductions on your Employer Payment Summary, HMRC will not know to credit your PAYE account. You will end up paying full PAYE and NI while the CIS credits sit unclaimed.

Incorrect Amounts

Ensure the CIS figures on your EPS match your actual deduction statements. Discrepancies will trigger queries from HMRC and delay any refund.

Missing the PAYE Payment Deadline

Even though you are offsetting CIS, you must still submit your payroll and EPS on time. Late submissions attract penalties regardless of whether you have CIS credits to offset.

Not Keeping Statements

Without CIS payment and deduction statements, you cannot evidence your claim. Keep all statements securely.

Sole Traders Cannot Use This Method

This payroll offset method is only available to limited companies (and other entities running PAYE payroll). If you are a sole trader, you reclaim CIS deductions through your Self Assessment tax return. You cannot offset them against any PAYE you run for your own employees — CIS and PAYE are handled separately for sole traders.

How Accounted Helps

Accounted tracks your CIS deductions and helps ensure they are correctly recorded:

• CIS deduction log — every deduction is recorded and categorised
• Monthly totals — ready to enter on your EPS
• Statement storage — digital copies of all your CIS statements
• Refund tracking — see how much excess CIS you have accumulated

Visit our pricing page to choose the right plan for your company.

---

Reclaim your CIS deductions faster. Sign up for Accounted and let Penny track every deduction so you never leave money on the table.