Gross Status: how do you get paid into your CIS company without a tax deduction?
If you run a construction business and you do subcontract work, there is the potential that you will have a 20% tax deduction from your labour. This can be annoying because you may want that money now for cash flow within your business.
So have you explored the potential of registering for CIS Gross status?
Follow this video, and I’ll go through exactly what qualifies and why it would benefit you and your construction business.
If you’re a construction company, and you’ve your customer above you is a subcontractor, they may have to deduct tax from the labour element of your income, which could be annoying because you want that capital in your business to help your cash flow.
But if you are registered for gross status, this means that income can be paid gross, with no tax deduction, no messing about, and no chasing for vouchers; you can receive all of your income straight away.
What companies qualify for Gross Status?
You may be a sole trader, partnership or limited company as a sole trader; for each of these, you have to have a history of where you’ve paid your tax on time. I know some of us may sometimes miss the deadline, but if you are a company that consistently pays their tax late, you are not going to get Gross Status.
If you are considering applying for this status, make sure that your payments are timely; otherwise, you can get some problems because of this.
If you are a sole trader, you must have at least £30,000 worth of income to be able to qualify for this. In a partnership, it goes up depending on the number of physical partners within the business.
As a limited company, this will be the same; it will be £30,000 as a director, but a limited company would need a minimum of £100,000 worth of income net of VAT to be able to apply for this.
In summary, if your business turnover is over £100,000, you could qualify for gross status, and this could be a huge benefit for you and your construction company.
When you’re applying for this, you need to give them accurate data. There are stiff penalties if the application you make is fraudulent and you have not told them the truth.
Which companies benefit from Gross Status?
In short: all of them!
This allows you to receive all of your income upfront, which can do wonders for your cash flow. It can keep your business energised, as you’re receiving all of your income, and it will allow you to trade with fewer problems.
When is Gross Status not good for you?
I’ve come across various clients in various industries who are poor with money. So if you find yourself in the year-end or various quarter ends, your Director’s Loan Account is ridiculously overdrawn – Gross Status is not good for you.
If you are terrible with money and you’re spending it left, right and centre, gross status is not good for you.
So one thing that I would be honest about with yourself, and this could be an opportunity to get better, is whether you are good with money because if you’re not, it will be best to stay on the scheme where you get your tax deducted, so you know that your corporation tax will be covered at the year-end.
The benefits of Gross Status
One of the biggest benefits is that there is less admin work with Gross Status.
I’ve worked with construction businesses for a long time, and getting CIS vouchers can sometimes be a pain. If the contractor’s accounts department is not well organised, or they haven’t done their proper returns, getting the credits you’ve been deducted for can be a pain.
So I love the gross payments system because it allows you not to be reliant on anyone else’s admin; you can just invoice them, get paid, put a personal allowance for the tax that you’ve got at your year-end and get on with your life.
Keeping your gross status
As I said at the beginning, there are certain criteria, be mindful that there are annual reviews on this.
So if you’ve got cashflow issues, or you’ve decided not to pay your tax on time, stop because if you want to maintain your gross status, you have to make sure you’re paying your tax on time.
I’ve seen it many a time, companies have had their gross status reversed, which creates massive pressure on the business.
So, what should you do?
The answer is short: keep your records in a tidy order! Or if you’re currently not gross registered and think it would benefit your construction business, there is no better time to start organising your records.
To get started with Gross Status, you need to start an application; your accountant or bookkeeper can do this.
There are so many opportunities which allow your business more strength by having the money in your bank account quicker. If you are one of those construction businesses that are taking the money out quickly, then maybe this is a really good opportunity to change the way you manage the business and get your construction business even stronger.
If there are any questions that I can help with in relation to this, and this could be specific to your business. Please feel free to book a discovery call with me. I’d be happy to take on board any questions, and I’ll promise there’ll be no pushy sales pitch.
