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If your business is a limited company and has had Construction Industry Scheme (CIS) deductions taken from its payments during the tax year - the tax year runs from 6 April to the following 5 April - you'll need to complete a P35 Employer Annual Return. This guide explains how you can use the P35 return to reclaim deductions taken from the payments.
Note: Only companies can use this arrangement to reclaim CIS deductions taken from payments - not individual subcontractors or partnerships.
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Where your company is paid under deduction for work done within the construction industry you should offset the CIS deductions during the tax year against the company's monthly or quarterly liabilities for PAYE/National Insurance contributions (NICs) and any CIS deductions taken from the company's own subcontractors.
At the end of the tax year the company should account for all CIS deductions made from its payments and that it offset against its own liabilities on the company's P35 Employer Annual Return. Where your company believes that a repayment is due at the end of the tax year, you must make a request in writing for this repayment quoting your employers or accounts office reference and send it to:
HM Revenue & Customs
Benton Park View
Newcastle Upon Tyne
At the end of the tax year and on receipt of both the P35 Employer Annual Return and your request for repayment, HM Revenue & Customs (HMRC) will repay to the company (or your nominee) any balance of the CIS deductions that the company was not able to offset during the tax year.
Each month, or quarter in some circumstances, the company should set against its liabilities for PAYE/NICs and CIS deductions from its own subcontractors, the full amount of any CIS deductions taken from its own payments for work undertaken in the construction industry. If, by doing this, the company's liability for the period is reduced to nil and there are still some unused CIS deductions that have not been offset, you should carry these forward to the next month or quarter within the same tax year. Don't forget to tell HMRC that you have no liability to pay over for the month or quarter.
If the company's CIS deductions available for set off in any month or quarter do not cover the whole of the company's liability for that period you must pay over the balance to HMRC by the usual payment date.
When a contractor pays your company under deduction for work undertaken in the construction industry it is legally required to give the company a payment and deduction statement showing the full amount of the payment and details of the deduction that it has made from that payment. It is therefore very important that you ensure the contractor gives you these statements and that you keep hold of them securely. You will need them when you come to complete the company's P35 Employer Annual Return, especially if there are any queries with HMRC as to what the company has been paid and what deductions have been taken from those payments. Even if you have problems getting these statements from the contractor the company can still offset the deduction against its monthly or quarterly payments.
The company must keep a record of the amounts set off against its monthly or quarterly liabilities. HMRC provides form CIS132 for this purpose or you may keep your own records if you prefer. If the company uses form P32 Employer Payment record or the table in its Payslip Booklet to record its PAYE/NICs/CIS payments, you should leave columns 14 and 15 blank.
Although it is not mandatory for the company to submit its CIS monthly returns online, in all but very few exceptional circumstances, you must file the P35 Employer Annual Return electronically. Failure to do so may incur a penalty.
At the end of the tax year, the company should show its CIS deductions on the P35 Employer Annual Return. The P35 Employer Annual Return must be completed even if the company had no employees during the tax year. In these circumstances, the P35 Employer Annual Return must be submitted as a 'complete return' with 'no P14s'.
You should show the full amount of any CIS deductions taken from the company's payments for construction work during the tax year. If you have used form CIS132, copy this total from column E of that form or from whatever alternative record you have kept. The amount must be entered into the 'CIS deduction suffered' field on the online P35 Employer Annual Return or in the same named box on the paper return if, exceptionally, you don't file this return online. Please call the Employer Helpline if you need a blank paper return P35 Employer Annual Return.
You should record deductions taken from the company's payments during the tax year and not during the company's accounting period. You should not attempt to claim this credit on the company's Corporation Tax return. You may incur a penalty if you do this.
If the company has paid subcontractors during the tax year from whom it was required to make a deduction, you should total up these deductions by adding together boxes 4.6 on all your CIS300 monthly returns for the tax year. Put the total into the field or box named 'Deductions made from subcontractors' on the P35 Employer Annual Return.
The total amount deducted from the company's subcontractors should match the total of the amounts shown on the CIS monthly returns.
To claim a repayment of CIS deductions after the end of the tax year see the section in this guide called 'Reclaim CIS deductions taken from payments'.
Where there is a discrepancy between your monthly returns and what has been paid to HMRC
If there is a discrepancy and you believe an amount shown on one or more CIS monthly returns may be incorrect, please don't attempt to correct matters by adjusting the amounts deducted from subcontractors on the P35 Employer Annual Return. In these circumstances you will need to amend each incorrect CIS300 monthly return by phoning the CIS Helpline.