HMRC see CIS gross payment as a privilege for subcontractors to have and HMRC have the power to remove gross status at any time. HMRC would do this if you start making late filings or paying your tax liabilities late, they tend to act very fast on this and are usually quite strict with one warning usually being issued and only a reasonable excuse to stop them from removing your Gross Status. HMRC would take into account all your taxes and filings, not only your CIS… so a late payment for your personal tax liabilities can affect your Gross Status.

CIS Gross Status is where the contractor does not deduct any CIS tax on your behalf so the subcontractor will receive the full payment of their invoice. This will make the subcontractor responsible for paying their taxes at the end of the financial year.

Although the amount of tax paid on profits will be the same if you obtain CIS Gross Payment status, there will be improvements to cashflow and reductions in the cost of credit so it makes the application process worthwhile.

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How To Apply For CIS Gross Status?

1. To become Gross Status, you simply sign in to Government Gateway - you will need your Government Gateway user ID. You can create one when you register for CIS.

2. From 'Your Tax Account' select other services

3. Select "Construction Industry Scheme and then select subcontractors.

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If you are already registered for CIS, you can apply for gross payment status by either:

• Calling the CIS helpline
• Filling in a form
• or you can register as a subcontractor online. You can apply for gross payment status at the same time.

If you complete the form you will have to print it off and send it to the address on the form.

There are different forms depending on whether you’re a sole trader, partnership or a limited company.

• Fill in the form for a sole trader
• Fill in the form for a partnership
• Fill in the form for a limited company

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How to Qualify for CIS Gross Status?

There are three tests you need to pass to gain CIS gross payment status:

No.1 Business Test:

You need to prove you carry out construction work. You’re unlikely to fail this test alone and any failure must be agreed upon by a Higher Officer within HMRC before you are informed. To pass the business test, HMRC will seek the following information:

• You are carrying on a business in the UK

• The business consists of, or includes carrying out construction operations, or supplying labour for construction operations

• The business is, to a substantial extent, carried on by means of an account with a bank.

Tips:

• Ensure you have a UK bank account

• Be able to support with documents/invoices that you operate in the Construction Industry

No.2 Turnover Test

Your turnover must be greater than £30,000 per director/partner or £100,000 for the whole company/partnership. The turnover is in reference to the last 12 months and refers to ‘net’ construction income. Net construction income is the total amount you have invoiced the customer, for activities within the construction industry, less related materials.

Related materials are costs incurred when carrying out the construction operations and include:

• Land, building materials and consumable items

• Fuel for plant

• The actual cost incurred for plant hire

• Any Construction industry Training Board Levy

The following items are not ‘materials’

• Subsistence

• Fuel for Travelling

• Cost of scaffolding purchased by scaffolding subcontractors

If the turnover test is not met, you might be able to meet one of the other turnover tests:

• Alternative Test

When multiplying the £30,000 threshold by the number of directors/partners is greater than your net construction income in the last 12 months due to a high number of directors/partners, the alternative test may be applied.

This test is for either a company or a partnership (not sole traders) and can be passed where the total net construction turnover exceeds £100,000 in the previous 12 months.

• ‘Prospective’ Receipt Test

The turnover test can be passed if the company or partnership (not sole traders) can show evidence relevant payments earned (including work in progress) exceed £30,000 and construction contracts have been entered into where the combined value exceeds £100,000.

• ‘Subsidiary Company’ Test

The turnover test can be passed if the company or partnership (not sole traders) can show evidence relevant payments earned (including work in progress) exceed £30,000 and construction contracts have been entered into where the combined value exceeds £100,000.

• ‘Inherited Receipts’ Test

Net contractor turnover in the 12 month period, earned by another business may be included in new applications if:

• Individuals operating as sole traders that form a partnership to succeed in their separate trades

• An individual that incorporates

• A partnership that incorporates, the former partners becoming directors/shareholders

• A company that joins a partnership made up of individuals or companies

• ‘Transferred Receipts’ test

No. 3 Compliance Test

All of your tax affairs must be up to date and all tax returns and payments must be submitted by the deadlines. This includes:

Self Assessment tax returns completed and returned by the due date

Monthly returns completed and returned. by the due date from the company as a contractor in the construction industry

Any PAYE tax and NICS due from the company paid by the company as an employer

Paid any deductions due from the company as a contractor in the construction industry

When considering if you will pass the HMRC compliance test, HMRC will disregard, during the same 12 month period, any or all of the following:

3 late submissions of the contractor’s monthly return – up to 28 days late

3 late payments of PAYE/NICs/CIS deductions – up to 14 days late  

Any Self Assessment tax return made late - up to 28 days late

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If the company application to be paid gross status is unsuccessful, your payments under the construction industry will have to paid with deduction.

HMRC will write to you giving the reasons for being unsuccessful along with advice on how the company can appeal the decision.

Gross payments status can be refused where HMRC have “reasons to expect” you will not continue to comply with future obligations on time.

Most businesses fail for CIS gross status due to the Compliance test, however, you can appeal the decision if you have a ‘reasonable excuse’ or if HMRC has not applied the test correctly. 

Examples of reasons are:

‍• Cashflow Difficulties

If you can prove that the late payment of tax was due to an unexpected failure of one of your customers or sudden difficulty of raising finance and where you have general good background compliance, HMRC can in some cases allow the appeal.

• Compliance Torrance

Ensure the refusal has not been made on a compliance breach that occurred before 12 months of the application.

‍• Reasonable Excuse such as:

- Sudden and serious illness during the 12 month period

- Unavoidable and unexpected absence close to the payment and filing date because of business commitments or domestic emergencies

- Accidental destruction of records through flood or fire

- Exceptional postal delays

Gross payment status is definitely something worth going for, if you need any support in applying feel free to reach out to us today.

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What Tax Do You Pay when Gross payment status?

The payments you receive during the year must be declared 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

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If you need any support in regards to CIS, speak to Saint Financial Group - Construction Specialists in the UK.