Here’s the second part of our Construction Industry scheme (CIS) blog. Our first blog covered the basics around the CIS, in this blog we focus on Gross Payment status as its an area that often causes some confusion.
What is gross payment status?
Simply put, it’s where your contractor won’t make any deductions from your payments. But before you get too excited, remember that doesn’t mean you wont have to pay any tax …… you’ll still have to pay your tax and National Insurance at the end of the year!
How to get gross payment status
You can apply for gross payment status when you first register for CIS with HMRC. If you’re already registered for CIS, you can apply for gross payment status by calling the CIS helpline or applying online.
Apply for gross payment status online
- Sign in to Government Gateway - you’ll need the Government Gateway user ID and password you used when you registered for CIS. If you do not have a user ID, you can create one when you register for CIS.
- From ‘Your tax account’, go to ‘Other services’.
- Choose ‘Construction Industry Scheme – Subcontractors’.
To qualify
Like most things with HM Revenue and Customs (HMRC) you need to pass some ‘tests’ to be granted gross payment status. You must show HMRC that:
- you’ve paid your tax and National Insurance on time in the past
- your business does construction work (or provides labour for it) in the UK
- your business is run through a bank account
HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:
- £30,000 if you’re a sole trader
- £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
- £30,000 for each director of a company, or at least £100,000 for the whole company
Note - If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.
Paying tax when you have gross payment status
You must declare your payments as income at the end of the tax year in:
- your Self Assessment tax return if you’re a sole trader or partner
- your Corporation Tax return if you own a limited company
Annual review
If you have gross payment status, HMRC will review your business every year, to decide if you can keep your status. You must be on time with your tax returns and payments to keep your gross payment status. If you run a limited company, HMRC will review the company itself, rather than individual directors or shareholders.
You do not meet all the conditions
You could fail the review and HMRC will remove your gross payment status. You’ll be allowed a small amount of late payments or returns.
Contact HMRC if you have problems paying your tax on time. If HMRC give you more time to pay, this will not affect your gross payment status.
You fail your review
You’ll get a letter explaining you’re about to fail the review, along with the reasons why. If you disagree, you can write back with your reasons. If HMRC accept your explanation, they will not remove your gross payment status. If you do not reply to the letter or HMRC does not accept your explanation, they’ll write to explain:
- what conditions you have not met
- that they’re withdrawing your gross payment status in 90 days
If you think HMRC have made the wrong decision, you have 30 days from the date of this letter to appeal.
Reapplying for gross payment status
If HMRC cancel your gross payment status, you need to wait a year from the date of the cancellation before you can reapply.
HMRC web links
Register for CIS - https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register
CIS Helpline - https://www.gov.uk/government/organisations/hm-revenue-customs/contact/construction-industry-scheme
Self Assessment - https://www.gov.uk/self-assessment-tax-returns
Corporation Tax - https://www.gov.uk/prepare-file-annual-accounts-for-limited-company
Gross Payment Status - https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/gross-payment-status
Problems paying your tax - https://www.gov.uk/difficultie...
HMRC Sign in to you Gateway Account - https://www.access.service.gov.uk/login/signin/creds
We also have this information available to download in 9 different languages here.
