Construction Industry Scheme (CIS) & Corporation Tax: CT600 Guide
If your limited company works in construction, the Construction Industry Scheme (CIS) significantly affects your cash flow — but there's a critical rule: CIS deductions are recovered through your payroll, not your Corporation Tax return (CT600).
What is CIS?
CIS requires contractors to deduct money from payments to subcontractors and pass it to HMRC — like PAYE but for construction work.
Deduction Rates
| Status | Rate |
|---|---|
| Registered subcontractor (verified) | 20% |
| Unregistered subcontractor | 30% |
| Gross payment status | 0% |
How Limited Companies Recover CIS Deductions
The Correct Process — Through Payroll, Not the CT600
HMRC's guidance is unambiguous: limited companies reclaim CIS deductions through their payroll (PAYE scheme), not through the CT600. HMRC explicitly warns that attempting to claim CIS deductions through the Corporation Tax return may result in a penalty.
The correct process:
- Register as an employer with HMRC — you need a PAYE scheme even if your only employee is a director
- Each month, submit an Employer Payment Summary (EPS) through your payroll software
- On the EPS, enter the total CIS deductions suffered that month — HMRC offsets this against your PAYE and employer NIC liability
- If CIS exceeds your monthly PAYE/NIC, the excess carries forward to the following months
- At the year end, any remaining unrecovered CIS deductions are claimed via HMRC's CIS repayment service
Your Corporation Tax return (CT600) is filed entirely separately — based on taxable profits — and CIS deductions do not appear on it.
Corporation Tax Calculation for Construction Companies
The CT600 is calculated in the normal way, on your taxable profits. The CIS withheld from your income is your company's money held by HMRC in advance — it does not reduce your taxable profits, and it is not deducted from your Corporation Tax bill on the CT600.
Example
| Item | Amount |
|---|---|
| Subcontracting income (gross, before CIS) | £200,000 |
| Less: allowable expenses | (£50,000) |
| Taxable profits | £150,000 |
| Corporation Tax at 25% | £37,500 |
| Less: marginal relief (3/200 × (£250,000 − £150,000)) | (£1,500) |
| Corporation Tax due | £36,000 |
Meanwhile, the £40,000 of CIS withheld by contractors is recovered separately through the monthly EPS/payroll route — it never appears on this CT600.
Note on marginal relief: At £150,000 profit, this company falls in the marginal relief band (between £50,000 and £250,000). The Corporation Tax rate is not a flat 25% — marginal relief reduces the bill. The formula is: full tax at 25%, minus the marginal relief fraction (3/200) multiplied by the gap between your profits and the £250,000 upper limit. At £150,000, the effective rate works out to approximately 24%.
Gross Payment Status
To avoid CIS deductions entirely, apply for gross payment status (form CIS305 for companies). Requirements:
- CIS registered
- For companies: net construction turnover of £30,000 per director, or £100,000 for the whole company (excluding materials and VAT)
- Up-to-date tax compliance — CT, PAYE, VAT, and CIS all filed and paid on time
HMRC reviews gross payment status annually. It can be withdrawn immediately if you fall behind on any compliance obligation.
CIS and Materials
CIS deductions apply to the labour element only. Always itemise materials separately on your invoices — the contractor deducts CIS only from the labour and profit element, not from the cost of materials you supply.
Common Issues
- Timing differences — CIS uses payment dates, not invoice dates. Ensure your EPS reflects deductions received in the correct month.
- Missing deduction statements — Contractors must give you a monthly deduction statement. Chase them for these; you need them as evidence to recover your CIS deductions via EPS.
- Late CIS returns — If your company is a contractor and misses a monthly CIS return, the penalty schedule is: £100 at 1 day late, £200 at 2 months, then £300 or 5% of the CIS deductions (whichever is higher) at 6 months, and the same again at 12 months.
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