The Construction Industry Scheme (CIS) is a taxation system specifically designed to manage payments made by contractors to subcontractors working in the construction sector. Under CIS, contractors are required to deduct 20% (or 30% for unregistered subcontractors) from a subcontractor’s payment to cover their tax and National Insurance obligations. This can, however, have a significant impact on subcontractors’ cash flow.

Fortunately, there’s an alternative: CIS Gross Payment Status. This special status allows registered subcontractors to receive payments in full, without any tax deductions, improving liquidity and cash flow management. Instead of having taxes withheld by contractors, subcontractors are responsible for handling their own tax liabilities directly with HMRC at the end of the financial year.

If you’re a subcontractor working under CIS, applying for Gross Payment Status can help streamline your finances and give you more control over your business cash flow. In this article, we’ll cover everything you need to know about applying for Gross Payment Status, from eligibility criteria to the step-by-step application process.

What is CIS Gross Payment Status?

Under the Construction Industry Scheme (CIS), contractors must deduct money from subcontractors’ payments and pass it on to HMRC as an advance towards the subcontractor’s tax and National Insurance. The standard rates are:

  • 20% deduction for registered subcontractors.
  • 30% deduction for those not registered under the CIS.

However, CIS Gross Payment Status offers a way for subcontractors to avoid these deductions. Subcontractors who qualify for Gross Payment Status can receive payments in full and pay taxes directly to HMRC at the end of the tax year through their Self Assessment or Corporation Tax return. This system provides a significant financial advantage, especially for growing businesses, as it improves cash flow and eliminates the need to wait for tax refunds from HMRC.

Obtaining Gross Payment Status is beneficial, but it requires subcontractors to meet specific conditions set by HMRC, including maintaining a good tax compliance record.

Who is Eligible for CIS Gross Payment Status?

Not every subcontractor can apply for Gross Payment Status. HMRC has established clear eligibility criteria that businesses must meet before being granted this status. These criteria focus primarily on the subcontractor’s business structure, turnover, and tax compliance.

Business Structure

  • Sole traders, partnerships, and limited companies involved in construction activities are eligible to apply for Gross Payment Status. These businesses must be based in the UK and perform construction work.

Turnover Requirements

  • There are specific turnover thresholds that subcontractors need to meet, based on their business structure:
    • Sole traders: £30,000 in construction-related turnover annually.
    • Partnerships: £30,000 in construction turnover per partner, or a total of £100,000 for the entire partnership.
    • Limited companies: £30,000 in turnover per director, or £100,000 for the entire company.

    The turnover calculation must relate directly to construction work, meaning non-construction activities don’t count towards this figure.

Tax Compliance

  • Subcontractors must demonstrate good tax behaviour. This means:
    • You must have paid all tax bills on time.
    • All tax returns (VAT, PAYE, etc.) must be filed promptly.
    • You should not have any outstanding late payments or non-compliance issues with HMRC.

Maintaining a clean tax record is critical because HMRC regularly reviews businesses holding Gross Payment Status to ensure they continue to meet compliance standards.

Benefits of CIS Gross Payment Status

For subcontractors, being granted CIS Gross Payment Status brings several advantages:

Improved Cash Flow

One of the most significant benefits is that you receive your payments in full without any tax deductions. This is especially useful for businesses that rely heavily on cash flow to cover ongoing expenses like payroll, materials, and equipment. Instead of waiting for tax refunds, you have full access to your revenue, which can be reinvested into the business immediately.

Control Over Tax Payments

Gross Payment Status gives subcontractors more control over when and how they pay their taxes. Rather than facing deductions throughout the year, you can manage your own tax obligations and make a single payment at the end of the tax year when filing your Self Assessment or Corporation Tax return. This flexibility can lead to better financial planning and forecasting.

Enhanced Business Reputation

Holding Gross Payment Status is seen as a mark of good standing with HMRC. It demonstrates that your business is financially responsible and tax-compliant, which can improve trust with clients and contractors. For larger contracts, this status may even be seen as a prerequisite, making your business more attractive to potential partners.

Step-by-Step Guide to Applying for CIS Gross Payment Status

Here is a clear guide to the process of applying for CIS Gross Payment Status:

Preparation Phase

Before applying, it’s essential to ensure your business meets all necessary requirements:

  • Make sure you’re registered under CIS. If you’re a subcontractor, you must already be part of the scheme.
  • Review your tax filings. Ensure that your Self Assessment or Corporation Tax returns are up to date and that you’ve paid any outstanding tax liabilities, VAT, PAYE, or NICs. Late or missing payments can result in a denied application.

Check Your Eligibility

  • Calculate your turnover to ensure it meets the minimum threshold based on your business structure (sole trader, partnership, or limited company).
  • Confirm that your construction work qualifies under the CIS scheme.
  • Ensure that your tax records are fully compliant, as this is a key part of HMRC’s decision to grant or deny your Gross Payment Status.

Submitting Your Application

Once you’ve confirmed that you meet the eligibility requirements, the next step is to submit your application to HMRC. You can apply either:

  • Online through your business tax account, or
  • By post, using a CIS Gross Payment application form.

You’ll need to provide specific details, such as:

  • Unique Taxpayer Reference (UTR). – Find your lost UTR Number
  • National Insurance number (for sole traders).
  • Company registration number (for limited companies).
  • VAT registration number, if applicable.

After submission, HMRC will assess your tax records to ensure you’re compliant.

What Happens After You Apply?

HMRC will review your application, which can take up to 6 weeks. During this time, they will examine your tax compliance history and may ask for additional information.

The possible outcomes include:

  • Approval: You’re granted Gross Payment Status and will receive payments in full.
  • Denial: If your application is rejected, HMRC will explain why, and you’ll have the opportunity to resolve any compliance issues before reapplying.
  • Follow-up: HMRC may request more documentation if they need further clarity on your application.

Common Mistakes to Avoid When Applying for CIS Gross Payment Status

The application process can be quite strict, and there are common pitfalls that subcontractors should avoid:

  • Late tax payments: Ensure all your taxes are paid on time, as any delays can result in a denied application.
  • Inaccurate turnover calculations: Ensure that your construction-related turnover is accurate and meets the necessary thresholds.
  • Incomplete financial records: Always maintain up-to-date and accurate financial records to avoid problems during the review process.

Maintaining CIS Gross Payment Status

Once your business is granted Gross Payment Status, it’s important to remain compliant with HMRC’s ongoing requirements. Here’s how you can maintain your status:

  • Stay on top of tax deadlines: Ensure all tax returns and payments are filed and paid on time.
  • Keep accurate records: Maintain accurate and transparent financial records that clearly show your construction-related turnover.
  • Prepare for annual reviews: HMRC conducts regular reviews to ensure your business continues to meet the necessary conditions. Any lapses in compliance could lead to your Gross Payment Status being revoked.

How LT Accounting Can Help

Applying for and maintaining CIS Gross Payment Status can be a complicated process, especially when it comes to ensuring full tax compliance and accurate record-keeping. This is where LT Accounting comes in. We offer tailored services to help you:

  • Ensure that your business meets the necessary criteria for Gross Payment Status.
  • Handle all tax-related paperwork, from filing returns to managing outstanding tax obligations.
  • Keep your financial records up to date to avoid any issues during HMRC’s annual reviews.

With our expertise in CIS and construction-related accounting, we can help your business maintain its Gross Payment Status and keep your finances running smoothly. Whether you’re a sole trader, partnership, or limited company, we have the knowledge to support your specific needs.

Conclusion

Achieving CIS Gross Payment Status can significantly benefit subcontractors in the construction industry by improving cash flow, reducing the need for tax refunds, and providing more financial flexibility. However, the application process requires careful preparation and a commitment to tax compliance. By following the steps outlined in this guide, you can ensure your business is well-prepared to apply for and maintain Gross Payment Status.

If you’re unsure about any part of the process or need help managing your financial records, LT Accounting is here to assist. Contact us today to learn how we can support you in achieving Gross Payment Status and managing your tax obligations effectively.