Gross Payment Status – Construction Industry Scheme

Introduction

Payments made to subcontractors within the construction sector are regulated by the Construction Industry Scheme (CIS) in the United Kingdom. One of its provisions
is the Gross Payment Status, which saves subcontractors within the CIS a 20%
or 30% deduction if they qualify for Gross Payment Status (0% deduction)

What is Gross Payment Status?
Under the CIS, the unique tax status known as Gross Payment Status is offered. Subcontractors are given the right to accept payments from contractors without being required to face any deductions.

Minimum Requirements for Gross Payment Status:

Subcontractors must fulfil requirements imposed by HMRC to be eligible for Gross Payment Status. There are 3 tests which must be satisfied and these consist of:

• History of compliance: Subcontractors must provide evidence that they
  have complied with their tax obligations in a suitable manner. This
  includes submitting tax returns on time, maintaining accurate records, and
  paying any unpaid taxes as soon as possible.

• Scope of work: The subcontractor's work must be covered under the CIS which typically covers construction, repairs, demolition, and site preparation. The provision of labour for such type of work also falls within CIS and scope of Gross Payment Status.

• Turnover criterion: To be eligible for Gross Payment Status, subcontractors must reach certain turnover criteria specified by HMRC which differs based on the legal structure of the business:

-] Being a sole trader, you would need a minimum turnover of
£30,000 and it will have to be for the last 12 months, ignoring any VAT.

-] The second type of business would be a partnership. For each partner, the
amount would be a minimum of £30,000 or at least £100,000 for the
whole partnership.

-] The third and last type of business would be a company. Here, each
director will need to have £30,000 or £100,000 for the whole company. If
your company is controlled by 5 people or fewer you must have an annual
turnover of £30,000 for each one of them.

How to apply to get gross payment status?
You can apply for gross payment status either when you register for CIS or later,
after registering for CIS.

Apply for gross payment status when you register for CIS  

• Sign in to Government Gateway - you’ll need a Government Gateway user ID. You can create one when you register for CIS.

• From ‘Your tax account’, go to ‘Other services’.

• Choose ‘Construction Industry Scheme – Subcontractors’.

Apply for gross payment status after you’ve registered for CIS

If you’ve already registered for CIS, you can apply for a gross payment status by either

• Calling the CIS helpline

• Fill in the form. (This form can be found online for each business type nor matter sole trader, company or even partnership at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/gross-payment-status )

Advantages of the Gross Payment Status

• Subcontractors who are eligible for Gross Payment Status can greatly
  improve profitability and cash flow, enabling subcontractors to make
  investments in their companies or meet their own financial objectives.
  
  

• Eliminating deductions allows subcontractors to keep the full payment
  amount, which gives their companies more stability financially.
  Subcontractors must examine HMRC instructions for the most up-to-date data, as the threshold may alter between tax years.
  
  

Get in touch with Cheylesmore Chartered Accountants today to consider your eligibility for the Gross Payment Status. Allow us to take the compliance burden off your shoulders regardless of whether you’re a contractor having to submit monthly CIS statements to HMRC or if you’re a subcontractor looking at improving cash flow.