How do I get gross payment status?

If you achieve gross payment status, it means that contractors will pay your wages in full to you, without sending any tax deduction to HMRC first. It is an option within the Construction Industry Scheme (CIS) for subcontractors.

Remember, the other alternatives are to voluntarily register for CIS and have 20% deducted and sent to the Tax office by your contractor, or to stay unregistered and lose 30% straight to HMRC.

Who is eligible for gross payment status

There are a strict set of eligibility criteria to meet in order to get gross payment status. There are a series of tests that you can apply to your business to see if you will be granted gross payment status.

  • Turnover Test: Do you hit the turnover target? This applies to your last 12 months trading, minus materials and VAT. It has variables for the different business structures. A sole trader must have £30,000 turnover. A limited company must have either £100,000 turnover for the entire business or £30,000 for each director. A partnership must have £30,000 for each partner, or £100,000 in total for the partnership as a whole.
  • Compliance Test: Are all your tax affairs completely in order? In the 12 months prior to your application, all your tax returns must have been in on time and every single tax and NICs liability paid by HMRC’s deadline without exception.
  • Business Test: The easiest one to answer and prove. Does your business do construction work in the UK and have a UK bank account?

Obviously, these are the broad outlines for each test that you need to pass and there is more fine detail to delve into, preferably with a CIS tax expert. But if you consider that the evidence is generally just your usual business records and you can confidently answer “yes” to each of the three questions above, it is definitely worth further investigation.

How do I pay tax when I have gross payment status?

Instead of the monthly deduction, you pay your tax bill at the end of the financial year either through your self assessment tax return if you’re a partnership or sole trader, or corporation tax return, if you are a limited company.

Benefits of gross payment status

Cash flow straight into your business, is the obvious benefit of getting gross payment status. There is also the kudos of having HMRC’s trust in this way. This gives an added reliability factor to your reputation for future potential deals. Business is definitely seen as steady, if you are given responsibility to pay your own monthly income tax and NICs bill.

For contractors, at a very practical level, it saves them the constant administration of tallying up your tax liability and having to communicate that to HMRC correctly. As with most tax affairs, there are financial penalties for contractors who make mistakes with their CIS submissions. Even just for deducting 30% instead of 20% on one subcontractor’s account. If you have gross payment status, you deal with all this yourself and this minimises the work for your contractor.

How to apply for gross payment status

If you are already part of the CIS, you can apply for gross payment status online. You will need your Government Gateway login details to get into the relevant section of your tax details. The sub section you need is called ‘Construction Industry Scheme – Subcontractors’ and is in the ‘Other Services’ tab. HMRC have a CIS number, 0300 200 3210, and you will need basic details when you make any enquiry (your UTR, or National Insurance number) for security purposes.

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