Many contractors and subcontractors choose to apply for gross status under the construction industry scheme (CIS).
Here’s what it means, and why we think you should choose it if you can.
What is the CIS?
If you work in the construction sector, you’ll likely already know what the CIS is.
In short, CIS increases your take-home pay on a job. The amount contractors deduct on each job for payments to HMRC is reduced from 30% to 20% when you register for the scheme.
These payments count towards your tax and National Insurance contributions bill.
What does it mean to have gross payment status?
If you have gross payment status, then contractors pay you in full without any deductions.
You don’t suddenly become exempt from paying tax, but rather than having to deal with a drip-feed system, you’ll pay all of your tax and National Insurance at the end of the tax year.
How does gross payment status help you?
The main advantage of gross payment status is that your cashflow improves throughout the year.
Without these tax deductions on every job, all your company’s turnover is paid to the business. That means you’ll find it easier to cover your day-to-day expenses.
In addition, paying taxes at the end of the year means you’ll avoid any potential double taxation. It can be a lengthy wait for a rebate to rectify overpaid taxes, which can disrupt your cashflow.
Better cashflow is likely to have a positive knock-on effect for your business, giving you a way out of pinch points in the year. You’ll probably also find that you have fewer circumstances in which you need to apply for credit, reducing your reliance on loans and overdrafts over time.
However, most businesses will need credit at some point for additional machinery, staff costs or any unexpected outlays.
If you have gross payment status, you could get more favourable credit terms, as gross payment status is a rubber stamp from HMRC indicating that you are a reliable business that pays its taxes on time. Banks and funders will take that into account when considering your application for credit and may even offer you better rates.
You’re also sending a message to contractors and sub-contractors that you’re responsible and dependable. And with that perception in the market, you might have the edge on your competitors and the ability to win more or bigger projects.
Do you qualify?
To qualify for CIS gross payment status, you’ll need to show you have good standing with HMRC – i.e. you’ve paid your tax and National Insurance on time in the past.
You’ll also need to meet the turnover threshold. Your turnover for the last 12 months should be at least £30,000.
If you’re a partnership or a limited company, your turnover must be £30,000 per partner/director or at least £100,000 for the whole partnership/company.
There’s a bit of room for interpretation in these qualifying factors, so if you’re not sure you meet the requirements, or you’ve been late once or twice in your tax payments, give us a call – you may still be able to apply.
We can also help you with the application if you know you qualify. We will help from start to finish.