Deductions: CTSA subcontractors: claims to credit for CIS deductions made after 5 April 2002
Where a company is not authorised to receive payments on gross payment status for construction operations carried out in the UK, the payment will be subject to a deduction under the Construction Industry Scheme at either the standard or higher rate of deduction (FA04/s61).
From 6 April 2002 limited companies that are subcontractors and having deductions made from their payments must set off these deductions against the monthly or quarterly payments due to HMRC in respect of the following (FA04/s62):
- PAYE tax and NIC contributions due from the company’s employees
- Student loan repayments due from the company’s employees
- CIS deductions due from the company’s subcontractors.
Note; this procedure only applies to companies having deductions made from their income as a subcontractor in the construction industry, and is not available to individuals or partner in a partnership subcontractors.
How the CIS off-set works in practice
In practice the subcontractor company must simply reduce their PAYE, NIC, any CIS liabilities and student loan repayments due from company employees or their own subcontractor’s, by the amount of any CIS deductions the subcontractor company has had made from their payments. The calculation for this may be done using the form CIS132.
If for any month or quarter the company’s own CIS deductions are greater than the total liabilities due, the company can set-off the excess against future payments of PAYE, NIC, any CIS liabilities and student loan repayments due n the same tax year.
A ‘Nil’ payslip must be submitted to the ‘Accounts Office’ where the company’s own CIS deductions exceed the company’s PAYE/NIC liabilities they are due to pay for a particular month.
At the end of the tax year following receipt of the company’s P35 return (for non RTI years), and where the company acts as a contractor, any excess CIS deductions which could not be set-off may be refunded or set against other liabilities.
For RTI years the company will complete monthly Employer Payment summary (EPS) returns showing the cumulative CIS deductions taken from its own income during the tax year. These amounts are off-set against the PAYE Tax and NICs etc it is due to pay for the tax year. Any excess of CIS deductions taken from the company’s own income is carried forward month by month until;
- all of the CIS deductions for the tax year are used, or
- the end of the tax year is reached.
Any excess CIS deductions which cannot be set-off and are still available at the end of the tax year may be refunded or set against other liabilities.
There is no company equivalent to the SA in-year repayment. This is confirmed by SI2005/2045 reg 56(5) which stipulates that HMRC shall not repay any sum deducted under FA04/s61 to a company subcontractor until;
- the tax year in which the deduction was made has ended, and
- the company subcontractor has paid all of the liabilities in its capacity as an employer or contractor to HMRC.
Guidance on making refunds or setting off PAYE overpayments, using form P565, can be found in the PAYE Manual.
Guidance on the records to be kept
Companies must keep a record of the amounts set-off in order to fully complete the form P35 at the end of the tax year. Companies may keep their own records or use the calculation form CIS132. This has been designed to be used in conjunction with other Employer stationery (form P32 ‘Employers Payment Record’ or the table in the P30(B) payslip booklet).
The company subcontractor should also retain all payment and deduction statements (PDSs) in case they are required as evidence of the CIS deductions they have had made (see PAYE53012 for non RTI years or PAYE53013 for RTI years).