What is CIS (Construction Industry Scheme) Gross Status?

In this article, we provide an exploration of the construction Industry Scheme and Gross payment status – What it is, how to apply and qualify for gross status.

If you are interested in our Gross Payment Payroll Solutions for Sole Traders, please click here.

Contractor and Sub-contractor definitions?

A contractor is “a business or other concern that pays subcontractors for construction work. Contractors may be construction companies and building firms, but may also be government departments, local authorities, and many other businesses that are normally known in the industry as ‘clients.”

A Subcontractor is defined as a business that carries out construction work for a contractor.

Notably, where a worker is supplied to a contractor by or through an agency and the worker carries out construction operations under the terms of a contract they have with the agency, the agency supplying the worker will be a subcontractor as far as the contractor is concerned. The contractor must apply the scheme when making payment to the agency.

Where a worker is merely introduced to the contractor by an agency and subsequently carries out construction operations under the terms of a contract they have with the contractor, the agency will not be considered the subcontractor.

What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme is a management and payment of tax specifically designed for self-employed individuals within the construction sector. HMRC introduced the scheme in 2000 to augment revenue collection within the construction industry by deducting tax at the source, whilst having all parties meet the obligations for work carried out on a construction site.

Construction work, under CIS tax, encompasses various activities related to permanent or temporary structures such as:

  • Civil engineering works including rail and maritime.
  • Demolition.
  • Building.
  • Alterations.
  • Repairs.
  • Decorating.
  • Site preparation. Such as providing access works.
  • Installations of various systems, such as power, lighting, heating etc.

Under the CIS tax scheme, the amount of tax deducted depends on the subcontractor’s tax status, with contractors required to deduct and submit tax to HMRC in some cases, while in others, no deduction is necessary. See below for the different percentages applied, depending on contractor tax status. Therefore, even in the most basic of supply chains, the worker, recruitment agency, and payroll (CIS) provider should all be registered under CIS and manage payments compliantly to avoid devastating financial losses for all parties.

If you’re involved in collaborations with contractors and subcontractors under the Construction Industry Scheme, it’s imperative to apply for gross payment status. This status enables you and all parties in your supply chain to tax workers compliantly.  

If the supplier does not have Gross Status, the client is obligated to deduct 20% tax before payment is made.

How Do CIS Tax Deductions Work?

All contractors must register for CIS with HMRC, although subcontractors have the option to register or not. Registration as a contractor requires providing essential information such as tax references, company details, and financial information. For, example:

  • Your company’s Corporation Tax number which you should have received from HMRC on a form called CT416. This is also known as your UTR (unique tax reference) number.
  • Directors’ NI number.
  • Directors’ DOB.
  • Company Registration number:
  • Company VAT number.
  • Company contact details:
  • PAYE reference number.
  • Account Office Reference Number.
  • Gross turnover figure.
  • Cost of any materials purchased.
  • Company bank details.
  • Directors’ personal UTR number.

Once registered, monthly CIS returns must be completed, even if no construction work was conducted during that period. It is crucial to verify the tax status of suppliers through the CIS helpline before making payments, as any inaccuracies become the contractor’s liability.

Notably, it is the contractor’s responsibility to verify the status of their subcontractors with HMRC. Subcontractors usually fall into three categories:

  • ‘Gross’ (no tax deduction).
  • CIS registered (20% tax deduction).
  • Unregistered or unverified (30% tax deduction).

Gross payment status can be applied for initially, subject to meeting qualifying conditions. Under gross status, contractors pay subcontractors in full, with no deductions. Subcontractors handle their tax and National Insurance obligations at year-end. Failure to deduct the correct tax or notify HMRC accurately can lead to fines and potential loss of the contractor’s gross status.

How to Apply and Qualifying for Gross Status

You can apply for gross payment status:

  • When you register for the Construction Industry Scheme (CIS).
  • Later, after you register for CIS.

How to qualify for gross status.

To attain gross payment status, subcontractors must demonstrate compliance with several key criteria:

  • Timely payment of tax and National Insurance and compliance with tax obligations.
  • Engagement in construction work in the UK.
  • Operation of a UK-based business through a bank account.

HMRC will consider your turnover for the last 12 months, Ignoring VAT and the cost of materials, your turnover must be at least:

  • £30,000 if you’re a sole trader.
  • £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership.
  • £30,000 for each director of a company, or at least £100,000 for the whole company.

Why Choose Futurelink Group

We understand that contracting may seem complex, be assured that we are here to help you have peace of mind.

Team Construction Limited, part of the Futurelink Group, is registered with HMRC with Gross Status under the Construction Industry Scheme. We provide two CIS payroll solutions for workers:

CIS Payroll – Self-Employed Solution
Futurelink’s CIS self-employed solution is ideal for workers who have registered with HMRC as self-employed where they have been given a 10-digit UTR number. Futurelink takes care of invoicing, receiving payment from the agency or company, processing the workers’ pay and deducting 20% tax in line with the Construction Industry Scheme. Unverified workers are taxed at 30% until fully registered.

CIS PAYE Umbrella – Employed Status
Futurelink’s PAYE solution is ideal for workers who do not have a self-employed status or are caught by IR35. Under the umbrella option, the worker becomes “employed” by us, while complying fully with CIS as the company has gross status. Team Construction Limited, part of the Futurelink Group, deducts the relevant tax and National Insurance(s) before paying the worker. No tax return is required when using this solution. Workers will be eligible for SSP (Statutory Sick Pay) and SMP (Statutory Maternity Pay). A comprehensive workplace pension scheme is also provided.

By utilising the services provided by the Futurelink Group, we can keep workers fully compliant with HMRC, protect the workers’ status and help to maximise their take-home pay.

For further information reach out to our customer relations team, who will be more than willing to provide detailed insights into our fully compliant payroll solutions. Feel free to contact us at +44 (0) 1923 277900, helpdesk@futurelinkgroup.co.uk , or sales@futurelinkgroup.co.uk