Why limited companies can reclaim in real time while sole traders wait
When a contractor deducts CIS from a payment to a subcontractor, that money goes to HMRC as an advance against the subcontractor's tax bill. For a sole trader that advance sits with HMRC until Self Assessment is filed after the year end, meaning deductions suffered in April 2026 might not be recovered until February 2027 at the earliest. That is the 18-month wait most sole traders experience.
A limited-company subcontractor does not have to follow that path. Because the company runs a PAYE scheme for its directors and employees, it already has a monthly obligation to send PAYE income tax and National Insurance Contributions to HMRC. The CIS rules allow the company to net off the CIS deductions it has suffered against that same monthly PAYE/NIC bill. The mechanism is the Employer Payment Summary, known as the EPS. Filed within the Real Time Information system, the EPS tells HMRC: "We have suffered £X in CIS deductions this month. Reduce what we owe you by that amount."
The result is that money is recovered in 30-day cycles rather than 18 months. For a company carrying meaningful CIS deductions, this is a significant working-capital difference.
It also pays to understand the underlying treatment. CIS deductions are not an income tax on the company. They are an advance payment of Corporation Tax. HMRC holds the credit on the company's CT account and, at the end of the accounting year, sets it against the CT liability. The EPS mechanism is a way to access that credit earlier, against in-year PAYE and NIC bills, rather than waiting until the CT settlement date.
For a full comparison of how the company and sole-trader structures differ across CIS, including GPS eligibility and tax extraction, see our guide to CIS: sole trader or limited company.
What CIS deductions actually cover (and what they do not)
Before walking through the mechanics, one rule must be stated clearly because it is one of the most commonly misunderstood points in CIS (our guide to what the Construction Industry Scheme is covers the full framework). CIS deductions apply to the labour element of a payment only. The cost of materials that the subcontractor has bought for the job is excluded from the deduction base.
This matters for calculating the EPS offset because the figure entered on the EPS must be the actual deduction taken, not the gross invoice amount. An invoice with a labour element and a materials element will have had CIS applied only to the labour portion. The deduction statement from the contractor shows the split.
| Invoice element | Gross amount | CIS deduction? |
|---|---|---|
| Labour (groundworks) | £8,000 | Yes: 20% = £1,600 withheld |
| Materials (concrete, rebar) | £4,200 | No: paid in full |
| Total invoice | £12,200 | Company receives £10,600 net |
In this example the EPS offset for this payment is £1,600, not £2,440 (which would be 20% of the full invoice) and not £12,200 (the gross invoice). Entering the wrong figure is one of the most common errors on EPS submissions and will produce a mismatch with the contractor's CIS300 monthly return.
The EPS: how it works, step by step
The Employer Payment Summary is a monthly submission that sits alongside the Full Payment Submission in the RTI system. Every employer sends an FPS each pay period to report pay and deductions. The EPS is sent separately, usually once a month, to report any adjustments that reduce the PAYE/NIC payment due, including CIS deductions suffered.
Step 1: Collect CIS deduction statements from contractors
Every contractor who has deducted CIS from a payment to the company must provide a written CIS deduction statement. The statement must show:
- The contractor's name and Unique Taxpayer Reference (UTR) or CIS scheme reference
- The company's UTR
- The gross amount of the payment
- The amount included for materials (excluded from the deduction base)
- The CIS deduction amount
- The tax period in which the payment was made
Statements must be provided to the company when payment is made or shortly after. If a contractor fails to provide one, request it in writing. You cannot file an EPS CIS offset without evidence, and HMRC can ask to see these statements during a compliance check.
Step 2: Total the deductions for the tax month
Tax months run from the 6th of one month to the 5th of the next. Deductions from all contractors that fall within the same tax month are added together. This total is the figure that goes on the EPS for that month.
Step 3: File the EPS by the 19th
The EPS must be submitted to HMRC by midnight on the 19th of the month following the end of the tax month. Deductions suffered in the tax month ending 5 June must be reported on an EPS filed by 19 June.
The payment of the reduced PAYE/NIC bill is due by the 22nd of the same month (electronic payment). If the CIS credit exactly equals or exceeds the PAYE/NIC liability, nothing is owed for that month and a nil payment is correct.
Step 4: Carry forward any surplus
If the CIS deduction credit in a given month is larger than the PAYE/NIC liability, the surplus carries forward to the following month. The EPS in each subsequent month includes both new deductions and any brought-forward credit. At the end of the tax year (5 April) any remaining unabsorbed credit is the "excess CIS credit" handled at year end.
The 19th and 22nd deadlines: why they matter
The deadlines are statutory, not administrative preferences. If the EPS is not filed by the 19th, HMRC's systems will assume the full PAYE/NIC amount is due and may issue a payment prompt or a late-payment penalty based on that full figure. The company then has to correct the position by filing the overdue EPS and contacting HMRC's employer helpline, which adds administrative time and can hold up the credit being applied to the account.
The 22nd electronic payment deadline applies to the amount due after the EPS offset. If the offset brings the liability to zero, nothing needs to be paid by the 22nd, but the EPS itself still had to be in by the 19th to produce that result.
Cheque payments must reach HMRC by the 19th (the earlier date applies because cheques take time to clear). Most companies pay electronically, so the relevant deadline is the 22nd for payment and the 19th for the EPS filing.
Worked monthly example
The following example uses a single-director limited company, registered for CIS as a subcontractor, that also has a part-time employee.
| Item | Amount |
|---|---|
| CIS income invoiced in tax month (labour £22,000, materials £9,000) | £31,000 gross |
| CIS deducted by contractor at 20% on labour only (20% x £22,000) | £4,400 |
| Net received from contractor | £26,600 |
| PAYE and NIC liabilities for the same month | Amount |
|---|---|
| Director salary PAYE income tax | £1,100 |
| Director employee NIC | £380 |
| Employer NIC (director + employee) | £520 |
| Employee PAYE + NIC (part-time) | £240 |
| Total PAYE/NIC due before offset | £2,240 |
| EPS calculation | Amount |
|---|---|
| CIS deductions suffered this month (from statement) | £4,400 |
| Less: PAYE and NIC liabilities | (£2,240) |
| Surplus CIS credit carried forward to next month | £2,160 |
| Amount payable to HMRC by 22nd | £nil |
In this month the company has received £4,400 back effectively (it has reduced a £2,240 PAYE bill to zero and has £2,160 sitting as a credit for next month), instead of that £4,400 being locked with HMRC until Corporation Tax settlement or a post-year-end refund request.
If the following month has smaller CIS income and the PAYE/NIC bill exceeds the new deductions plus the carried-forward credit, the company simply pays the balance. The EPS accumulator resets to nil if fully absorbed.
Year-end: what happens to excess CIS credit
At the end of the tax year (5 April) there may be CIS credit that was never absorbed because the company's PAYE/NIC liabilities in total were smaller than the total CIS deductions suffered. This excess credit has two possible destinations.
Option 1: Offset against Corporation Tax
Because CIS deductions are an advance payment of CT, the excess credit can be set against the Corporation Tax liability for the accounting period that falls within or overlaps the tax year. The company's accountant applies the credit in the CT return (CT600), reducing the CT payment due. This is the most common outcome for a profitable company: the CT liability absorbs the credit rather than cash moving in either direction.
Corporation Tax is charged at 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief between those thresholds. A company with a £180,000 profit and £8,000 of excess CIS credit would apply the credit to its CT bill, reducing the cash due by £8,000.
Option 2: Cash refund from HMRC
Where the excess CIS credit exceeds the CT liability (for example, a company that had a low-profit year or significant capital allowances), the balance is refunded by HMRC as a cash payment. The company requests this via the final EPS for the tax year and the CT600 process. HMRC aims to process valid refund requests within 25 working days. The key to a smooth refund is ensuring the CIS figures on the EPS match exactly what each contractor reported on their CIS300 monthly return: any discrepancy pauses the process while HMRC reconciles.
Common EPS errors and how to avoid them
The following mistakes appear repeatedly on EPS submissions and all of them create delays or create compliance risk.
Entering gross income instead of the deduction amount
The EPS CIS field takes the amount of CIS tax actually deducted, not the gross invoice value and not the labour-only portion of the invoice. Read the figure directly from the CIS deduction statement provided by the contractor. If statements are missing, request them before filing.
Missing the 19th deadline
A late EPS means HMRC collects the full PAYE/NIC amount and the credit is not applied. Recovery requires a correcting EPS plus contact with HMRC's employer helpline, which adds time. Diary the 19th as a hard deadline, not a target.
Failing to get deduction statements from contractors
Without the statement you have no documented basis for the offset and you are exposed in a compliance check. Make it a contractual term with every contractor that statements are issued with payment. A contractor who deducts CIS and fails to provide a statement is itself in breach of the CIS rules.
Duplicate entries or wrong tax-month attribution
If a payment straddles two tax months, the deduction is attributed to the month in which the payment was made, not the invoice date. Entering the same deduction across two EPS submissions doubles the credit claimed and will be caught when reconciled against the contractor's CIS300.
Not filing an EPS in months with no PAYE liability
A company with no payroll in a month may assume there is nothing to file. But if CIS deductions were suffered that month, the EPS is still required to record the credit. Skipping it loses the month's credit until a correcting submission is made.
Relying on the EPS without keeping deduction statements
HMRC can open a compliance check on a PAYE scheme and request the underlying CIS statements for any period in the last three years. If the company cannot produce them, the offset claim becomes unsupported and HMRC can raise a charge for the underpaid PAYE.
The limited company versus the sole trader: the real cash-flow difference
To make the timing advantage concrete, consider two subcontractors who both suffer £3,000 a month in CIS deductions throughout 2026/27, totalling £36,000 over the year.
| Sole trader | Limited company | |
|---|---|---|
| Recovery mechanism | Self Assessment return filed by 31 January 2028 | EPS offset, month by month throughout 2026/27 |
| When money comes back | February 2028 at the earliest | Each monthly PAYE cycle, starting May 2026 |
| Approximate wait | Up to 18 months from first deduction | 30 days per month's deduction |
| Cash locked with HMRC at any point | Up to £36,000 across the year | Typically close to nil each month |
The difference is not just one of timing. For a growing subcontracting business, having £36,000 locked at HMRC throughout the year is real working-capital that cannot fund materials, plant hire or wages. The EPS route largely eliminates that constraint.
This is one of the central reasons the limited-company structure is worth examining for subcontractors whose CIS deductions are substantial. The structure also brings other considerations (Corporation Tax, dividend extraction, employer NIC at 15% above £5,000 a year from April 2025, administration costs), which are covered in full in our guide to CIS sole trader versus limited company, linked above.
Gross Payment Status: the alternative to reclaiming deductions at all
The EPS offset mechanism exists because CIS deductions are being made in the first place. A company that holds Gross Payment Status is paid in full with no CIS deduction (0% rate), so there is nothing to reclaim.
GPS requires passing a business test, a compliance test and a turnover test. For a limited company, the turnover threshold is £30,000 per director or £100,000 in total net CIS turnover (labour only, excluding VAT and materials) in the last 12 months. A company that clears those tests and holds a clean compliance record can apply for GPS, after which cash flow is permanent rather than month-by-month recovered.
From 6 April 2026, the GPS regime is significantly tighter under Finance Act 2026. HMRC can now revoke GPS immediately, without advance notice, where a contractor "knew or should have known" about fraudulent connections in their supply chain. That "should have known" standard means that failure to carry out due diligence, specifically re-verifying each subcontractor's CIS status, running a Companies House legitimacy check, and confirming bank account names, is sufficient for revocation even without any intent to participate in fraud. A five-year reapplication ban applies on fraud-related revocations, up from one year previously. For a company on £500,000 of annual turnover, losing GPS costs roughly £100,000 a year in deducted cash. If you are working towards GPS or currently hold it, our guide to CIS gross payment status covers the qualification tests and the new anti-fraud requirements in full.
What to do now
If your limited company is currently having CIS deductions made and you are not already filing monthly EPS submissions to recover them, the first step is to confirm your PAYE scheme is active and that your payroll software supports EPS CIS filing. Most modern cloud payroll packages include this field, but it must be populated deliberately: the software will not pull the figure from your invoicing system automatically.
Collect all outstanding CIS deduction statements from your contractors for the current and previous tax years. If you are behind on EPS submissions, correcting EPS submissions can be filed for earlier months in the same tax year, recovering credit that would otherwise sit unclaimed until the year-end CT process.
To see what your company deductions look like before the EPS offset, run an invoice through our CIS deduction calculator. It shows the labour-only base the 20% is applied to, which is the figure your reclaim is built from.
If you are unsure whether the EPS route is being used correctly, or if there is a mismatch between what you have claimed and what contractors reported on their CIS300 returns, getting that aligned before HMRC's annual reconciliation will prevent a compliance query arriving unexpectedly. Our CIS refund service covers both the in-year EPS process and the year-end excess-credit claim for limited companies, as part of an ongoing compliance relationship rather than a one-off recovery exercise.