The Construction Industry Scheme (CIS) has caused quite a bit of confusion since it was first introduced back in 1972.
It has taken on a number of names and forms over the last 40 years, and today exists as a means of deducting money at the source for tax payments related to certain types of construction work.
These deductions count as advance payments towards a subcontractor’s tax and National Insurance, and contractors must register for the scheme.
What does CIS cover?
Let’s have a quick refresh of what CIS does and does not cover.
According to HMRC, CIS covers most construction work to:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
Where CIS is concerned, this construction work can include:
- preparing the site, eg laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
However, you do not have to register for CIS if you only carry out certain types of jobs, such as:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- making materials used in construction including plant and machinery
- delivering materials
- work on construction sites that’s clearly not construction, eg running a canteen or site facilities
Here’s where it gets tricky
From a cash flow perspective, it’s far more beneficial as a subcontractor to be paid gross. This means the contractor is paying you in full, without deductions.
The onus is then on you to pay your own tax and National Insurance at the end of the tax year.
This allows you to maximise your take home and gives you more financial control – as opposed to having taxes deducted up front.
Gaining Gross Payment Status
To gain Gross Payment Status (GPS), you must:
- Demonstrate that you’re completely up-to-date with any and all tax liabilities and filings;
- And have a business bank account.
You must also pass a turnover test. HMRC will check to ensure your labour-only turnover exceeds:
- £30,000 for Sole Traders
- £30,000 per partner or £100,000 for the whole Partnership
- £30,000 per director or £100,000 for the whole Limited Company
Losing Gross Payment Status
But once you’ve gained GPS, unfortunately, that’s not the end of the story. You can also just as quickly lose it.
At least once during a 12-month period, HMRC will undertake a scheduled review to make sure that the business continues to qualify for GPS. And the business can lose its status if, during the 12-month period:
- Contractor returns have been received late on four or more occasions;
- One contractor return is more than 28 days late;
- PAYE or CIS payments have been late on four or more occasions;
- PAYE or CIS payment is more than 14 days late;
- Self-assessment payment is more than 28 days late;
Furthermore, GPS is likely to be cancelled if the following is overdue:
- self-assessment return; or
- a payment of £100 or more.
Note: Should HMRC withdraw your gross payment status, you can appeal, however, you must do so within 30 days of receiving the notice.
Have any other questions about CIS? Call us on 01228 534 371 to chat with one of our friendly advisors.