Getting Paid and Paying Tax – part 2
In this Accountancy Services Direct article we go on to discuss what is required after you have established that you are going to need to be registered for the Construction Industry Scheme (CIS) and you have to decided if you are going to require gross payments.
Gross payments are when the contractor will pay you gross, without any deductions for tax.
Here we look at how you are able to qualify for being paid gross. Should you not qualify for gross payments then you will be paid under deduction as discussed here.
To enable HMRC to register you for a gross payment status then you or your business MUST:
- Perform construction work in the UK through a UK bank account;
- Have a construction turnover, excluding VAT and materials, of over £30k each year;
- Have complied with all tax obligations.
Before HMRC grant you the status of gross payments then you will need to show that you or your business passes three tests based on the points above.
1.Business Test
You must be able to show that your business:
- Carries out construction work, or provides labour for construction work in the UK;
- Is run largely through a UK bank account.
2.Turnover Test
You will need to provide HMRC with evidence of your business turnover from construction work, excluding VAT and materials, for the 12 month period before you applied.
Your turnover must be at least:
- £30,000 if you are a sole trader;
- £30,000 for each partner in a partnership or at least £200,000 for the whole partnership;
- £30,000 for each director of a company, or at least £200,000 for the whole company.
If five or fewer people control the company or partnership then the annual turnover must be at least £30,000 per individual.
3.Compliance Test
You, any directors or partners in the business, or shareholders (where company is controlled by five or fewer persons) must have submitted all tax returns and paid all tax due on time in the last 12 months before application.
Also, if HMRC have requested any information from you in that time then you must have provided it.
A few minor lapses or late payments are allowed and HMRC will ignore any or all of the following:
- Three late submissions of the CIS contractor monthly return, including nil returns, up to 28 days late;
- Three late payments of CIS/PAYE deductions, up to 14 days late;
- One late payment of Self Assessment tax, up to 28 days late;
- Any employers end of year return made late;
- Any late payment of Corporation tax, up to 28 days late. This includes any shortfall in the penalty which has incurred an interest charge but no penalty;
- Any Self Assessment return made late;
- Any payment not made by the due date where it is less than £100.
If HMRC does agree that you qualify to be paid gross then you must declare your payments in your tax return at the end of each financial year.
Some further guidance on subcontractor obligations under CIS can be found on HMRC website.
Should you be paid gross then you may be subject to a Tax Treatment Qualification Test (TTQT) also known as a Scheduled Review. This is where HMRC check that you still qualify for gross payments for tax.
If you want any help or guidance surrounding registering for gross payments within CIS or anything generally about CIS then please do not hesitate to contact us at Accountancy Services Direct.
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