If you have a CIS registered limited company, obtaining gross payment status will allow you to be paid a gross amount rather than being taxed at 20% (CIS registered) or 30% (non-CIS registered).
Having gross payment status is beneficial in that you can receive your gross income into your limited company without any deductions made. This means your income is not taxed at source and you only need to pay tax on a quarterly basis.
Gross payment status is a level within CIS registration and is the preferred method for most construction workers, with most workers aiming to reach this level in order to benefit financially. Our blog will take you through the process of obtaining gross payment status for your CIS registered limited company.
How can I qualify for gross payment status?
For a limited company to qualify for gross payment status, you must satisfy the following conditions:
- The compliance test: you must have paid your tax and National Insurance Contributions, and your company's Corporation Tax obligations, on time for a period of 12 months
- The turnover test: your company's turnover must be £30,000 or more, excluding VAT, in the last 12 months
- The business test: you must be operating your construction business in the UK through a bank account
HM Revenue & Customs (HMRC) will review your gross turnover for the last 12 months, excluding VAT and the cost of materials. In order to qualify for gross payment status, your annual limited company net turnover must be at least £30,000 for each director of the limited company. This calculation is based on the total turnover of the company (excluding VAT) minus the cost of materials.
How can I apply for gross payment status?
If you are confident that you meet all of the requirements, you can apply for gross payments via HMRC form CIS305, in which you will fill out your company details and turnover information. Alternatively, as a client of Churchill Knight & Associates Ltd you can notify us that you would like to apply for gross payment status. As your accountant, we can help you complete the necessary paperwork that is required by HMRC and advise you of where this should be sent.
Our support means you can be sure that your application is completed accurately and is submitted to the relevant HMRC department.
In this application process, you will need to prove that you meet the qualifying criteria mentioned above. Churchill Knight & Associates Ltd can assist in advising you of your company turnover and helping with the calculation to check that you meet the requirements before applying.
What happens next?
If you are accepted for gross payment status, you will need to start declaring your gross payments as limited company turnover in your Corporation Tax Return. It will then be subject to Corporation Tax and National Insurance contributions. It is important to note that gross payments are VAT inclusive if your company is VAT registered, however VAT does not contribute to the overall sum of your company’s turnover. As the expert accountancy service provider for CIS workers, we can make these calculations for you to ensure the accurate numbers are sent to HMRC.
You should also be aware that HMRC might conduct an annual review to decide if you still qualify for gross payment status, factoring in whether you are on time with tax returns and payments. You are allowed a small amount of late payments or returns, however if you fail your review and HMRC cancels your gross payment status, you need to wait a year from the cancellation date to reapply.
More information about gross payment status is available on the Government website.
Registering under CIS and applying for gross payment status may seem overwhelming, but we can help. Churchill Knight & Associates Ltd has been helping contractors operate their limited companies since 1998, making us industry experts in specialist contractor accounting.
Churchill Knight’s CIS accounting removes the burden and complexity of registering for CIS and applying for gross payment status. As a firm of specialist contractor accountants, we can assist you with setting up your limited company, registering for CIS and in the future, if you are eligible and have met the HMRC requirements, help you apply for gross payment status.
If you plan to work in construction for a significant period of your contracting career, we will guide you through the entire process and provide you with long-term support with our CIS accountancy service. This gives you the security and confidence to control your finances and plan for your future in the most tax efficient way.
If you would like more information about our CIS service and applying for gross payment status, contact us or request a callback.
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