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The amount of the deduction on account of tax from contract payments (see E5.546) made under the construction industry scheme (CIS) must be paid by the contractor to HMRC and for the tax purposes of the recipient, does not reduce the total amount of the payment¹.

If the subcontractor is not a company, the amount deducted is treated as income tax paid in respect of the profits from their trade, profession or vocation. If the tax deducted at source exceeds the subcontractor's income tax liability, the excess is treated as discharging any liability to Class 4 NIC on those profits².

In the case of a company, the amounts deducted are treated by regulations as satisfying 'relevant liabilities'. The sum deducted must firstly be set off against the company's various liabilities for the tax year in which the deduction is made. Any excess is treated as corporation tax paid in respect of the company's profits and is available for repayment³.

'Relevant liabilities' are any payments due to HMRC in respect