The CIS (Construction Industry Scheme) has had several iterations since it was first introduced in 1971 as the Construction Industry Tax Deduction Scheme, and it is under constant review by HMRC.
One requirement of the scheme, which aims to regulate the tax and National Insurance contributions made by subcontractors and the self employed in the construction industry, requires a percentage (either 20% or 30%) of all payments to contractors be paid directly to HMRC as advance payment towards income tax and National Insurance contributions.
Contractors (for example property developers or building companies) who employ sub-contractors (such as bricklayers, carpenters or plumbers) must register for the CIS, and while sub-contractors don’t have to register, those that don’t will see higher deductions of 30% rather than the 20% deductions of those registered.
This applies to all contract payments made within the construction industry and is applicable when work is carried out by a subcontractor on behalf of a contractor.
While the CIS has helped to ensure that HMRC get their fair slice of tax and National Insurance contributions, thereby making the industry safer and more controlled, it can be a fly in the ointment for subcontractors who already have a limited cash flow.
To mitigate problems brought about by the scheme, HMRC allow contractors who meet certain conditions to register for Gross Payment Status, which means that contractors receive all their payments in full, with no deductions. The contractor then pays their entire National Insurance and income tax contributions at the end of the tax year.
Benefits of Gross Payment Status:
But while Gross Payment Status is touted as one of the most positive effects of the CIS, Gross Payment Status is difficult to achieve. Contractors must meet 3 criteria to be eligible:
If any one of these tests are failed, gross payment status will not be granted, or it will be revoked.
This can make it virtually impossible for sub-contractors with a limited turnover, or newer businesses, to benefit from Gross Payment Status.
Another challenge for recruitment agencies trying to achieve Gross Status is the Intermediaries Legislation, as an agency cannot be deemed to be a ‘contractor’ and ‘sub-contractor’ when they employ the worker directly.
Thankfully, there is another option. Using an intermediary who is the workers employer and also has Gross Status.
JMK Group are employers who have Gross Payment Status and can ensure that contractors can access the benefits that Gross Payment Status provides.
Get advice from one of our specialists today, we’d be happy to help.
Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions.
We have evolved to provide a range of expert services; such as Professional Employer Organisation (PEO), or Back Office Support (BOS) or Funding, becoming a leading provider to the contracting industry.
We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.
With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.