How to Offset CIS Deductions Against Corporation Tax: The EPS Route

To offset CIS deductions against corporation tax as a limited company subcontractor, you first recover them through your monthly payroll scheme using an Employer Payment Summary, and only the balance left unused at the end of the tax year can be directed against your corporation tax bill through a separate refund claim. Entering CIS deductions directly on your CT600 is not permitted and can trigger a penalty.¹

Why CIS Doesn’t Go on the CT600

CIS deductions taken from your invoices are treated by HMRC as advance payments toward your company’s PAYE and National Insurance liabilities, not toward corporation tax. That is why the recovery route runs through payroll first. HMRC is explicit that limited companies should not try to reclaim CIS through the Corporation Tax return, and doing so risks a penalty.¹ The offset against corporation tax exists, but it happens after the tax year ends, as part of a formal refund claim you can direct wherever you want it applied.

Step 1: Claim CIS Through Your Monthly EPS

Each tax month, alongside the Full Payment Submission that reports employee pay, send an Employer Payment Summary showing the total CIS deductions your company has suffered for the year to date. HMRC then reduces what you owe in PAYE and National Insurance by that amount, and you pay only the remaining balance by the usual date.

The EPS must reach HMRC by the 19th of the month following the period the payments were received.² You can file through HMRC’s Basic PAYE Tools or through approved commercial payroll software; both will prompt you for the year-to-date CIS figure and your company’s Unique Taxpayer Reference.

When Your CIS Credit Is Bigger Than Your PAYE Bill

In many months, the CIS withheld from you will exceed what you owe in PAYE and National Insurance. The surplus carries forward to the next month within the same tax year. Send the EPS anyway, showing you have nothing to pay for the period.¹ Skipping the EPS when nothing is owed is a common mistake, and it can cause HMRC to estimate your liability incorrectly.

The running total on each EPS grows through the year, and HMRC uses it to keep your PAYE account in balance. Consistent monthly filing is the only way to maintain an accurate credit position until 5 April.

Step 2: Direct the Year-End Balance to Corporation Tax

After the tax year ends on 5 April, any CIS deductions you were unable to use up through payroll become eligible for a refund. This is the point at which you can push those unused credits against your corporation tax bill.

Before you can claim, all relevant PAYE, CIS, and Corporation Tax returns for the period must have been submitted.³ You then make the claim online through the Government Gateway or by post. Postal claims should be marked “CIS” and sent to PT Operations North East England, HM Revenue and Customs, BX9 1BX.

To have the amount applied against corporation tax rather than paid to you as cash, include your Corporation Tax unique tax reference with the claim. HMRC will offset the refund against what you owe.³ One timing point matters here: if you submit the claim before the 5 April filing cycle has completed, HMRC’s records may not yet show all your deductions for the previous year, which can produce delays or an incorrect figure. Waiting until your year-end filings are in gives you a cleaner claim.

Directing the Refund to VAT or PAYE Instead

Corporation tax is not the only liability you can point the refund at. In the same claim, you can ask HMRC to apply the repayment against your VAT balance by giving your VAT registration number, or against your PAYE account by giving your PAYE reference.³ That flexibility helps when the corporation tax bill is modest but a larger VAT liability is coming due. If you don’t specify a preference, HMRC will process the refund as a direct repayment to the company.

Records That Support the Claim

Every offset claim rests on the payment and deduction statements your contractors issue after each payment. Contractors are required to provide them within 14 days of the end of each tax month.⁴ Before filing any EPS, cross-check the figures on those statements against your own invoices and receipts. If what the contractor reported to HMRC does not match what you claim, HMRC will query it and your claim slows down.

Add the deductions from your monthly statements to calculate the year-to-date figure the EPS requires. Payroll software should track this automatically, but verify it manually at least once a quarter, particularly if several contractors are withholding from you at different rates.

Keep accounting and tax records for at least six years from the end of the relevant accounting period. That covers CIS deduction statements, payroll records, and copies of every EPS and FPS submission. Storing them through cloud accounting software makes retrieval straightforward if HMRC opens a compliance check later.

When a Contractor Never Gave You the Statement

If a contractor goes into liquidation or stops trading before giving you the deduction statements, the underlying entitlement to claim still stands, only the paperwork is missing. Write to HMRC at PT Operations, HM Revenue and Customs, BX9 1BX, and include your name, address, and UTR; the contractor’s name, address, and tax reference if you have it; the dates of the payments or tax months involved; and the reason you don’t have the statements.¹ HMRC can cross-reference the contractor’s own submissions to confirm what was withheld on your behalf.

If your own company goes into administration or liquidation, the person managing the insolvency should write to HMRC promptly to request repayment of any outstanding CIS deductions, because those claims are handled separately from the normal year-end cycle.

Interest If You Get the Timing Wrong

If your company underpays corporation tax because it expected a CIS offset that was delayed or disallowed, HMRC charges interest on the shortfall. The late payment rate for corporation tax is the Bank of England base rate plus 4%, which as of January 2026 is 7.75% per year, accruing daily from the day after the payment deadline.⁵

Where HMRC owes you a refund and takes time paying, you earn repayment interest at the base rate minus 1%, with a floor of 0.5%. As of January 2026, that rate is 2.75%.⁵ The gap between 7.75% charged and 2.75% earned is a practical argument for keeping the monthly EPS current rather than trying to reconcile everything at year end.

Avoiding Deductions Altogether: Gross Payment Status

If your company qualifies for gross payment status, contractors pay you in full with no deductions, and the whole offset problem disappears. To qualify, the company must pass a business test, a turnover test, and a compliance test.⁶

The turnover test requires annual net construction income (excluding VAT and materials) of at least £30,000 per director, or £100,000 for the whole company. For companies controlled by five people or fewer, the threshold is £30,000 per controlling person.⁶ The business must also do construction work in the UK and operate through a bank account.

The compliance test is where most applications fail. Over the 12 months before applying, the company must have filed all Self Assessment, VAT, and CIS contractor returns on time and paid all PAYE, VAT, and CIS liabilities by their due dates. HMRC allows narrow tolerances: up to three late contractor monthly returns or VAT returns (each no more than 28 days late), up to three late payments of £100 or more (each no more than 14 days late per tax type), and any late payment under £100.⁷ Anything beyond that and the application will be refused.

Apply using form CIS305, online or by post.⁸ If the company is not yet registered with the scheme, the application registers you at the same time. Gross payment status is not permanent: HMRC reviews compliance periodically and can revoke it if filing or payment obligations slip.