CIS: Frequently Asked Questions (FAQs)

Company CIS Deductions Set-off against tax/NICs payments

Contents

Q. What exactly is this new procedure?

A. Before 5 April 2002, companies that had deductions made from their income as subcontractors were only able to use these deductions to reduce their final Corporation Tax bill.

However, from 6th April 2002, subcontractor companies having deductions made from their income are able to set off these deductions against the monthly or quarterly payments due to the Inland Revenue for PAYE/NICs and any CIS deductions they have made from payments to their own employees and subcontractors.

Q. Why has the change been made?

A. The change has been made to help companies in the construction industry make earlier use of the deductions made from their income.

Q. When did the new procedure begin?

A. The change applied from 6th April 2002, which was the start of the 2002-2003 tax year. The first time companies were able to reduce their monthly payments in this way was 19th May 2002 for monthly payers and 19th July 2002 for quarterly payers.

Q. Which subcontractors may take advantage of the new procedure?

A. The change only affects those companies having deductions made from their income as subcontractors in the construction industry. It is not available to individual subcontractors and partnerships.

Q. Why does it only apply to companies and not individuals or partnerships?

A. In almost all cases of individuals and partnerships working in the construction industry, the rate of deduction at 18% is approximate to their eventual tax liability for the year.

For small company subcontractors, however, the amount of deductions made from their income is usually well above the company's eventual tax liability. This new arrangement therefore allows companies in this position to make use of those deductions at an earlier stage.

Q. How do the new procedures work in detail?

A. Companies should set off CIS deductions that have been made from their income as subcontractors against the payment of PAYE/NICs and CIS deductions that they are due to pay over to the Inland Revenue for that same period.

  • Any CIS deductions made in any month or quarter that cannot be fully set-off against payments due for that period are carried forward and used against later pay periods within the same tax year. In this situation the company must submit a nil payslip to the accounts office so that we know there is nothing to be paid over.
  • When the CIS deductions available for set-off in a pay period do not cover the whole of the company's payment for that period, the company must pay over the balance by the normal payment date (19th of the month).
  • The company must keep a record of the amounts set off. You may use form CIS132 that has been produced for this purpose and that we sent out to every company on our CIS database.
  • When we have received the company's P35 and CIS36 end of year returns, any CIS deductions that have not been set off during the tax year may be repaid - or we may set them against any outstanding liabilities, depending on the amount involved. Some small changes have been made to the form P35 to cater for this.

Q. What if the company still wants any deductions to be set against its future Corporation Tax bill?

A. This change means that this will no longer be possible.

When the company has sent us its form P35 and form CIS36, where one is due, any balance of deductions that have not been set off against the PAYE/NICs CIS liability will be repaid unless there are other known due and payable liabilities.

But, of course, any deductions made against subcontracting income up until the new arrangements began will still be set against Corporation Tax.

Q. My company is an employer and a subcontractor that does not have deductions made on its construction related income - can it reduce the monthly payments of PAYE/NICS etc?

A. No - There has been no deduction from your income. Therefore you should continue to pay over the full amount of PAYE/NICs as you do now.

Q. I am not a subcontractor, but I am an employer. Can I make use of this arrangement?

A. No - it only applies to companies in the construction industry who have deductions made from their income as subcontractors.

Q. Have any changes been made to Employer forms?

A. Yes - but we have tried to limit this as much as possible. The only employer form that has been changed is the P35 where two extra boxes have been added. Employers not affected by this change should ignore these boxes.