A company cannot claim CIS deductions on its corporation tax return. It offsets them month by month through the payroll instead, and only the excess is repaid after the year end. That difference is the largest cash-flow problem in the sector.
How the offset works
Where a limited company is a subcontractor and has CIS deducted from its income, it sets those deductions off through the RTI process — specifically the Employer Payment Summary — against what it owes HMRC each month. It can be set against, in order:
Anything left over at the end of the tax year can be refunded or set against corporation tax. CIS 340 is explicit that no repayment or set-off against other liabilities can be made in-year, except where the company is in liquidation or administration.
A labour-only company subcontractor with one or two people on the payroll will suffer far more CIS than it has PAYE and National Insurance to absorb. The excess cannot be released in-year, so it accumulates until after 5 April — and the smaller the payroll, the larger the amount stranded.
Since 6 April 2024, VAT compliance forms part of the gross payment status compliance test, and from April 2026 the consequences of losing the status are more serious than they were. Both are reasons to get the wider compliance record clean before applying rather than after being refused.
Not on its corporation tax return. A company sets CIS deductions off in-year through the Employer Payment Summary against PAYE, National Insurance, student loan repayments and the CIS it has deducted from its own subcontractors. Only the excess remaining at the end of the tax year can be refunded or set against corporation tax. CIS 340 states that no repayment or set-off against other liabilities can be made in-year, except where the company is in liquidation or administration.
Because the offset is capped by what you owe on the payroll. A labour-only company with a small payroll suffers more CIS than it has PAYE and NIC to absorb, and the surplus cannot be released in-year. The smaller the payroll relative to turnover, the more cash is stranded until the year end.
Running a real payroll is what makes the monthly offset work, so for a company suffering significant CIS it usually does help. But the payroll has to be genuine — real payments, real RTI submissions, real amounts — and the decision on how a director takes income involves income tax, National Insurance, corporation tax and the dividend rates that rose two points on 6 April 2026. It is worth working through the whole picture rather than changing one part of it.
No deduction is made from its income, so there is nothing to offset and nothing to reclaim. The company still operates CIS as a contractor on its own subcontractors, verifies them, files monthly returns and issues statements. The two roles are separate and most trade companies of any size are in both at once.
We run the payroll, file the EPS, reconcile CIS suffered against your statements, and put it on the balance sheet where it belongs. Start with a free review of three months.