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Subcontractors: obtaining gross payment status

 

Subcontractors: obtaining gross payment

status

For subcontractors in the construction industry, obtaining gross payment status is seen as a watermark of success. Not only can it help your business reach the next level, but being granted the status is an achievement in itself.

How it works

Normally, the contractor will make deductions from the subcontractor’s pay. Tax and national insurance contributions (NICs) are deducted at source and the subcontractor receives their net pay, rather than a gross income.

Gross payment status changes this. Subcontractors receive payment in full and are then expected to pay tax and NICs themselves at the end of the tax year.

Advantages

All CIS-registered subcontractors should look into obtaining gross payment status for 2 reasons.

1. Receiving gross payment can improve your cash flow situation. Obviously this money will still need to be paid to the revenue but if your monthly cash flow is hard to manage, the extra money can be hugely helpful to ensure your business doesn’t slip into financial trouble.

2. Subcontractors able to retain their gross payment status are generally viewed by contractors as more reliable than those who do not. It shows them that HMRC trusts you to pay your tax and NICs on time and is thus official proof that you are the real deal. Contractors not only want reliable people, but also people who can spare them the hassle of handling tax payments by doing it themselves.

Getting gross payment status

Subcontractors must pass 3 tests in order to successfully get gross payment status:

·         Business

 

Subcontractors must carry out their construction work in the UK and run their business through a bank account.
 

·         Turnover

 

The turnover requirements will depend on whether you operate as a sole trading individual, a partnership or a limited company. Sole traders are required to turn over a minimum of £30,000 a year (excluding VAT and material costs). 

 

Partnerships and limited companies must make at least £100,000 a year or £30,000 per partner/company director.
 

·         Compliance

 

Your tax affairs must be up-to-date; if you have any outstanding tax returns or payments, you will fail the compliance test.

 

Although HMRC may overlook minor compliance issues such as late-filing for self-assessment, persistent failure to comply will result in a revocation of your status.

Get help

Convincing HMRC to grant you gross payment status can be tricky, but retaining it even more so. We recommend that you seek professional advice before applying to the revenue.

Contact us on 01628 631 056 or email geoffk@knightandcompany.co.uk to learn more about our services for those working in the construction industry.