What is CIS Gross Status?

If you earn a living through the construction industry, then you will most likely pay your taxes in a different way.

Almost all construction industry tax payments are made through the Construction Industry Scheme, or CIS as it is more commonly known.

This means that tax is paid differently to how it is done in most other industries, but some subcontractors may wish to pay all of their tax at the end of the financial year like many other sole traders or self-employed people.

If you fall into this category, it’s important to know what CIS gross status actually is, and how to apply for it.

Here at Contractwise, we’re experts when it comes to helping construction companies remain CIS compliant. We ensure there is no risk of HMRC reclassification which can be costly for any construction business.

In this article, we’ll outline what CIS gross status is, with our own handy guide.

Read on to find out more.

What is the Construction Industry Scheme (CIS)?

To understand what CIS gross status is, you must first thoroughly understand the Construction Industry Scheme and how it works.

If you work as a contractor or subcontractor in the construction industry then you should already be aware but the scheme was first introduced in the UK in the 1970s.

CIS is a tax deduction scheme that allows construction companies and contractors to withhold tax payments from subcontractors and make the payments on their behalf directly to HMRC. Designed as a way to prevent tax avoidance, these deductions then count as payments towards people’s income tax and National Insurance responsibilities.

The scheme has undergone some changes since it was first introduced, but ultimately the purpose remains the same as it did when it was first created.

It is a legal requirement for every contractor to be registered with the Construction Industry Scheme, but subcontractors have a choice.

Registered subcontractors will have a 20% tax deduction whereas those who are not registered will see 30% deducted in tax from their pay packets.

It’s important to understand the difference between a contractor and a subcontractor when it comes to CIS.

A contractor is a construction professional who pays subcontractors to carry out specific tasks or jobs.

In contrast, a subcontractor will carry out the work. Usually, but not always, subcontractors will be specialists in a certain field and will be called upon for their expertise.

Typical examples of subcontractors include:

• Electricians

• Carpenters

• Groundworkers

• Plumbers

• Painters

• Plasterers

• And more

It’s vitally important that contractors and subcontractors are properly classified when submitting CIS claims. This helps to keep them properly protected and minimises the serious risk of HMRC reclassification.

Furthermore, if contractors do not deduct the right amount of tax from subcontractors, they may also be penalised by HMRC. Contractwise can audit your payroll to make sure this doesn’t happen.

You can check out our previous blog on the difference between contractors and subcontractors here.

What is CIS gross status?

If you’re a subcontractor that wants to handle their own tax affairs rather than be part of the Construction Industry Scheme, you will need to apply for gross status.

CIS gross status means that contractors will pay you in full without any deductions. Unlike most subcontractors who opt not to be part of CIS, there won’t be a 30% tax deduction.

This is because you will be required to make all of your income tax and National Insurance payments yourself at the end of the financial year.

There are a few benefits to this including:

• Greater autonomy when it comes to cash flow

• Some people prefer to make one off payments

• It demonstrates that you are trusted by HMRC to pay your own taxes, this can boost your reputation

If you want to apply for CIS gross status, there are a few things you’ll need to do.

Read the section below to find out more.

How to apply for CIS gross status?

Not everyone will be granted CIS gross status.

HMRC will check that you meet a few requirements before deciding whether your eligible for it.

First of all, you’ll need to prove the following:

• All tax and national insurance payments have been made on time in the past.

• Your business demonstrably does construction work (or provides labour for it) in the UK.

• The business is being run through a UK bank account

If you meet all of the above, HMRC will then examine your finances over the last 12 months, specifically they will focus on turnover.

They will ignore VAT and the cost of materials, and your turnover must be the following if you are to be given CIS gross status:

• £30,000 if you’re a sole trader

• £30,000 for each partner in a partnership (or £100,000 total)

• £30,000 for every director of a company (or £100,000 total)

If your company is controlled by five people or fewer, every individual must have an individual turnover of at least £30,000.

A compliance test will also need to be passed by those applying for CIS gross status.

In order to pass this test, HMRC will, again, take a forensic look at your last 12 months.

You must have done the following:

• Completed and returned self-assessment tax returns by the due date

• Returned any monthly returns due from the company in the construction industry by the required due dates

• Paid any PAYE or NICS tax payments by the due date

If you meet all of the above, then you will be granted CIS gross status.

Regular checks and monitoring will take place to ensure all subcontractors that have CIS gross status are still eligible and continue to be compliant. The best way to make sure you don’t lose your CIS gross status is to ensure you always make payments to HMRC on time.

Here at Contractwise, we regularly help contractors and subcontractors from across the construction industry. We provide a wide range of leading CIS services, helping take the burden of tax off your shoulders and guarantee you’re always compliant and not at risk of HMRC reclassification. Contact our team today to learn more.