If you’re a subcontractor, you are no doubt accustomed to having 20% tax deducted off your earnings, part of which you can normally have refunded when your tax return is filed. Many prefer this system as it means they don’t have to save up to pay tax bills like other self-employed people do.
However, your business may grow to a size where your expenses are considerable and losing 20% of your income (most of which will be refunded to you) can cause significant cashflow problems. Additionally, reporting CIS suffered to the Revenue can add an extra administrative burden. If this is the case, you might like to apply to the Revenue for “gross status” which means contractors will not deduct any tax from you. You will literally be paid by your customers gross. Gross status can be requested if the following conditions are met:-
- Your tax and National Insurance have been paid on time in the past (if you’re not up to date, don’t despair. Once you clear your debt with the Revenue, you can apply for gross status after paying tax etc on time for a while)
- Your business does construction work (or provides labour for it) in the UK
- You have and use a bank account for your business
- Your annual sales (exclusive of VAT) must be over a certain limit
- A sole-trader sales must be at least £30,000;
- For partnerships and limited companies, the sales must be at least £30,000 for each partner/director or at least £200,000 for the whole partnership/company;
- There is an additional allowance for limited companies: if the company is controlled by 5 people or fewer, you must have annual sales of at least £30,000 for each of them. So if your company has two shareholders, your annual sales must be at least £60,000 to apply for gross status.
Do bear in mind that if you are granted gross status, you will need to pay tax on your profits so you should budget for this.
You can apply for gross status online or by phoning the CIS helpline.