On 23 April, HMRC issued an update to their Construction Industry Scheme manual to let Limited Companies know what they need to do under Real Time Information about recovering any CIS deductions they have suffered.
The update, Construction Industry Scheme – Records of amounts set off, states that those Limited Companies that have CIS deductions taken from their income as subcontractors should set these off against their monthly or quarterly payments to HMRC. Companies should reduce their tax/National Insurance contributions or CIS payments by the amount of CIS deductions taken from their incoming payments.
However, it should be noted that this arrangement is not available to individual subcontractors or partnerships. Such subcontractors who suffer CIS deductions cannot offset these deductions against their PAYE liability during the tax year.
Getting back to Limited Company subcontractors.
The total ‘CIS Deductions Suffered’ for the tax year to date should be entered at item 102 of an Employer Payment Summary. Unless the EPS is submitted with item 102 completed, it will not be possible for a Limited Company subcontractor to reduce their PAYE remittance by any CIS deductions suffered.
An EPS should be submitted online to HMRC by the 19th of the tax month following, e.g. by 19th May for the tax month ending 5th May 2013. If the EPS is submitted after the 19th then any recovery of CIS deductions can only apply to a following month’s PAYE remittance.
For example, if the relevant EPS is submitted after 19th May, for tax month 1, the PAYE remittance for tax month 1 cannot be adjusted for any CIS deductions. As long as the EPS is submitted by 19th June, then the PAYE remittance for tax month 2 can be adjusted.
Any CIS deductions suffered in a tax month that cannot be fully set off against payments due HMRC for that period should be carried forward and used for later pay periods within the same tax year.
This means that the maximum amount of CIS deductions shown at item 102 of the EPS cannot be more than the total PAYE liability for the tax year to date.
When the CIS deductions available for set off in a pay period do not cover the whole of the company’s PAYE liability for that period, the company must pay over the balance by the normal payment date.
Limited Company subcontractors need payment statements for all the CIS deductions taken from their income by contractors and should have received these from the paying contractor(s). But if the statements have not yet been received a company can still set off the CIS deductions against its monthly or quarterly payments.
Any Limited Company recovering CIS deductions through an EPS return must keep a record of the amounts of deductions they offset against their PAYE liability.
The HMRC update includes a table a subcontractor should use to keep this record. If the Limited Company uses the form P32 Employer Payment Record or the table in their Payslip Booklet to record their tax/National Insurance contributions payments, they should leave columns 16 and 17 blank.
When HMRC have received the company’s last Full Payment Submission (FPS) and/or Employer Payment Summary (EPS) for the tax year in question, any CIS deductions that have not been set off during the tax year may be repaid. Or HMRC may set them against any unpaid tax, depending on the amount involved.
What about those individual subcontractors or subcontracting partnerships who have also suffered CIS deductions?
As these types of subcontractor cannot offset the CIS deductions they have suffered against their PAYE remittance, they should not enter any amounts of CIS deductions at item 102 of an EPS. Instead the details of the CIS deductions will be claimed as part of their self-assessment tax return after the end of the tax year.