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What is the Gross Payment Status (GPS) Compliance Test and How to Apply

The construction industry in the UK operates under a unique tax system known as the Construction Industry Scheme (CIS). If you’re a contractor or subcontractor in this industry, understanding the CIS, specifically the Gross Payment Status (GPS), can be crucial for your business finances. So, what is the Gross Payment Status Compliance Test, and how can you apply for it? Let’s dive in.

What is Gross Payment Status (GPS)?

Within the CIS, contractors usually deduct tax at source from payments made to subcontractors. This means that subcontractors receive payments after the tax has been deducted. However, businesses with a Gross Payment Status receive their payments in full, without any deductions. Instead, they are responsible for managing their tax and National Insurance contributions.

Benefits of GPS

  • Improved Cash Flow: As your payments are not subject to up-front deductions, you have better control over your funds.
  • Business Reputation: Achieving and maintaining GPS can elevate your reputation in the construction industry. It indicates financial stability and reliability in managing tax obligations.

Achieving GPS can be beneficial, but to be eligible a subcontractor must pass the GPS Compliance Test.

GPS Compliance Test

The GPS Compliance Test makes sure subcontractors can be trusted to handle their own taxes responsibly. The main criteria include:

  1. Business Test: The construction work must be undertaken in the UK and run through a bank account.
  2. Turnover Test: There’s a threshold for the turnover from construction work. HMRC evaluates your past year’s turnover, excluding VAT and material costs. The required turnover is:
  • £30,000 for sole traders.
  • £30,000 per partner in a partnership or a minimum of £100,000 for the entire partnership.
  • £30,000 per company director or a minimum of £100,000 for the entire company.
  • For companies controlled by 5 or fewer people, the annual turnover must be £30,000 for each individual.
  1. Compliance Test: You must show a good record of tax returns and payments for the previous 12 months. No late submissions, unpaid tax or overdue amounts!

If you pass all three parts of the test, you can apply for GPS. But remember, you have to continue meeting these criteria because HMRC reviews the status annually.

How to Apply for Gross Payment Status

  1. CIS Registration: Before applying for GPS make sure you’re registered under the CIS. Both contractors and subcontractors need to be registered. You can apply when you register for the CIS or at a later date.
  1. Application:

If applying at the same time as registering for CIS:

  1. Sign in to Government Gateway
  2. From ‘Your tax account’, go to ‘Other services’. 
  3. Choose ‘Construction Industry Scheme – Subcontractors.

If applying after you register for CIS:

  1. Call the CIS helpline.
  2. Fill in a form.
  3. Supporting Documentation: You may be asked to provide certain documents such as business accounts, VAT returns, and evidence of operating your business through a bank account.
  4. Compliance Checks: HMRC will conduct checks to ensure you meet all the criteria for the GPS Compliance Test.
  5. Approval: If your application is successful, you’ll be granted GPS, and contractors won’t make deductions from your payments. You will, however, be responsible for paying your tax and National Insurance at the end of the tax year.
  6. Regular Review: HMRC reviews your status annually. Stay compliant with all your tax obligations to maintain your GPS.

        Helping You Navigate The GPS

        Navigating the Gross Payment Status (GPS) might sound complex, but the perks for subcontractors are huge. Just remember, staying on top of your taxes is the key. The HMRC sees GPS as a trust badge, given only to those who’ve earned it.

        Thinking of diving into GPS? Make sure your finances are tidy, and keep an eye on any CIS or GPS updates. With the right approach, GPS can be a game-changer for your business.

        Find current HMRC CIS info here

        Find current HMRC GPS info here

        Need a hand? As your go-to tax partners, we’ll simplify the CIS, manage your payments, and make sure your tax returns are on point. Our goal? Letting you focus on building great things, while we handle the numbers.

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        Top Priorities When Preparing for Tax Due Diligence

        Tax can seem like one of the most complicated bits of your business and tax due diligence is no different. It’s the process of gathering information about your company’s tax affairs to make sure it’s compliant with current tax laws. It’s also a critical part of any business’s risk management assessment and helps spot and reduce any potential tax risks.

        Preparation is always the key when preparing for a company’s tax due diligence. There are some steps you can take to make it more straightforward, such as:  

        • Understand the tax laws. The first step is to understand the relevant company tax laws in the UK. This includes the different types of taxes that businesses are subject to and the rules and regulations governing these taxes.
        • Gather all relevant documentation. Make sure you gather all documentation relating to your company’s tax affairs, including tax returns, invoices, contracts and bank statements.
        • Identify any potential risks. Once you have all the relevant documentation together, take the time to identify any potential risks in your tax affairs, for example, errors on tax returns, unreported income or improper deductions.
        • Take steps to mitigate any risks. Once you’ve spotted any potential risks, do something to stop them. This may involve amending tax returns, paying back unreported income or correcting improper deductions.
        • Have a plan in place. It’s important to have a plan in place in case there’s an audit. Your plan should include who’s responsible for responding to the audit, what documentation you’ll need to provide and how you’ll address any findings.

        By following these steps, you can prepare your business for the tax due diligence process in the UK and make sure you’re compliant with the tax laws. If you’re uncomfortable with the tax due diligence process, always seek professional help. We’re here to make the complicated clearer and the overwhelming accessible when it comes to tax, so get in touch with our team today. 

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        Domestic Reverse Charge VAT for Construction Services Explained

        Just what the world needs – more types of tax. The Domestic Reverse Charge (DRC) for construction services is a tax change that came into effect on 1 March 2021. The DRC applies to businesses that supply construction services to other businesses, which means they cannot charge VAT on those supplies anymore. Instead, the person or business that has received the construction services is now responsible for accounting for the VAT. So the customer rather than the supplier is liable to account for and pay the VAT to HMRC.

        Who does the DRC apply to?

        The VAT domestic reverse charge must be used for most supplies of building and construction services and applies to standard and reduced rate VAT services for businesses who are registered for VAT in the UK and reported within the Construction Industry Scheme.

        How to comply with DRC

        If you’re a supplier of construction services, you not only need to know about the DRC, but make sure you’re on the right side of the law to keep the HMRC happy and avoid incurring a penalty. 

        Here are our tips to help you comply with the DRC:

        • Identify your customers. Make sure you know which of your customers are VAT-registered businesses.
        • Check your invoices. Check that your invoices do not include VAT for construction services supplied to VAT-registered businesses.
        • Register for the DRC. If you’re not already registered for the DRC, you must do so. You can register online at GOV.UK.
        • Keep records. Keep records of all the construction services you supply to VAT-registered businesses. They should include the date and value of the supply and the customer’s VAT registration number.

        Extra tips for complying with DRC

        Here are some more helpful tips if you’re affected by the DRC:

        • Talk to your accountant. If you’re unsure how the DRC will affect your business, talk to your accountant. They’ll be able to help you understand the changes and make sure you’re compliant.
        • Use accounting software. Accounting software helps you to keep track of your VAT transactions and ensures that you’re correctly accounting for the DRC.
        • Be prepared for challenges. The DRC is a complex change, and it may take time for businesses to adjust. Be prepared for some initial challenges, and be patient as you work through them.

        By following these tips, you can make sure the transition to the DRC is as smooth as possible and that you’re compliant and keep the HMRC and their fines at bay.

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        What Are the Benefits of Being CIS Registered?

        The Construction Industry Scheme (CIS) is a government initiative that has been designed to help contractors and subcontractors pay the right amount of tax to HM Revenue and Customs (HMRC). It’s applied to lots of different types of construction work that’s carried out in the UK and can apply to companies of various sizes and turnover. 

        If you’re a construction business then you must register as a contractor with the Construction Industry Scheme ( CIS ) if you pay subcontractors to do construction work or if you’ve spent more than £3 million on construction in the 12 months, even if they’re not in the construction industry.

        Whether you’re a sole trader, in a partnership or own a limited company, the rules above still apply but if you’re not sure if you need to register, take a look at the Gov.uk’s list of who’s covered by CIS.

        They also set out some rules you must follow including:

        Beyond staying on the right side of the HMRC, there are several benefits to being CIS registered, including:

        • Peace of mind. As a CIS registered contractor, you can be confident you’re paying the right amount of tax and are not at risk of being investigated by HMRC. 
        • Reduced risk of fraud. The CIS scheme helps to reduce the risk of fraud in the construction industry. It does this by making sure contractors are properly vetted and that payments are made via a secure payment system.
        • Improved cash flow. CIS can help to improve your cash flow by making sure payments are made in full and on time.
        • Increased opportunities. Contractors that are CIS-registered can be more likely to be considered for hire by major contractors as it shows a commitment to compliance. 

        If you’re a contractor working in the construction industry, we’d always recommend becoming a registered member of CIS. It’s a simple process to join with lots of rewards to reap.

        How to register for CIS

        To register for CIS, you’ll need to give HMRC some basic information about you, your business and your tax reference number. You can register via the phone or post, as well as online. 

        Once you’ve registered, you will receive your own unique CIS registration number, which must be added to all the invoices you send to contractors.

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        Here to help

        Are you a contractor in the construction industry? Have you registered for CIS? If you need help navigating the process then we’re here to help you make the most of the benefits that come with it from reduced risk of fraud, better cash flow, more opportunities and, of course, peace of mind that everything is as it should be.

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        How to Protect Your Construction Business Through the UK’s Cost of Living Crisis

        The UK is in the middle of a major cost of living crisis with inflation hitting a 40-year high. This has had a significant impact on businesses of all sizes but is particularly challenging for construction companies.

        The construction industry is labour-intensive and the cost of living crisis has made it tricky for companies to attract and retain staff. Add this to the rising cost of materials, it puts a strain on businesses, their profits and on the people who run them. 

        Here are seven tips to help you help your construction company weather the storm.

        1. Review your expenses

        Look carefully at your business expenses and see if there are any areas where you can cut back. For example, negotiating better deals with suppliers, reducing unnecessary spending or reducing waste.

        2. Increase prices

        Think about whether you’re able to put your prices up to offset rising costs. However, be careful not to put them up too much or you could lose customers who are also feeling the pinch.

        3. Look for new revenue streams

        Think about how you can generate new revenue, like expanding into new markets, launching new products or services or partnering with other companies to offer more services to more customers.

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        4. Get help from the Government

        Have a look at government-funded programmes designed to help businesses struggling with the cost of living crisis. They can provide financial assistance, tax breaks and other resources that may have a few helpful tips that could end up transforming your business’s fortunes.

        5. Build up your cash reserves 

        A healthy cash reserve gives you a cushion to fall back on if your revenue takes a hit so try and work out how you might be able to give yourself a buffer you can turn to in tougher times.

        6. Negotiate with creditors

        Don’t be afraid to talk to and re-negotiate with your suppliers and agree on new payment plans that are beneficial for your business as well as theirs.

        7. Get help from a business advisor 

        A business adviser can help you develop a plan to weather any storm and come out stronger on the other side.

        Here are a few more short but sweet tips specifically for construction businesses:

        • Focus on efficiency: identify ways to streamline operations and reduce waste, like using more efficient materials, equipment and processes.
        • Invest in technology: new technologies can help improve efficiency, productivity and safety.
        • Partner with other companies: collaborating with others shares resources and expertise, helping to save money and improve your bottom line.
        • Stay up-to-date with industry trends: the construction industry is constantly evolving so it’s important to keep up with the latest trends. This will lead to better decisions and help you give your customers what they want and word will soon spread. 

        You’ve worked hard to build your business, so we’re here to help you protect it from the ups and downs of the UK’s economy, and the cost of living crisis. For more help and advice, take a look at our collection of construction-related articles.

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        Do limited companies have to pay CIS?

        Contractors must legally register for the Construction Industry Scheme ( CIS ). The scheme means that contractors deduct money from a subcontractor’s payments and pass it to the HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance.

        However, there are some exemptions and reliefs that can apply to paying CIS and as always, we’re here to help you save money whenever and wherever possible.

        Who has to pay CIS?

        Whether you’re a sole trader, in a partnership or own a limited company, you must register as a contractor with the Construction Industry Scheme (CIS) if you pay subcontractors to carry out construction work. Even if you’re not in the construction industry, if you’ve spent more than £3 million on construction in the 12 months since you made your first payment, then you still have to register.

        Who is exempt from HMRC CIS?

        You don’t have to register as a contractor with the CIS is the work you’re carrying out is: 

        • paid for by a charity or trust
        • paid for by a governing body or by the head teacher of a school acting behalf of the local education authority
        • on the subcontractor’s own property if the work costs less than £1,000 excluding materials. However, you must call the CIS helpline to get an exemption. 
        • On a property not for sale or rent and for your own business use

        The type of work being carried out also affects whether you’re exempt, for example:

        • architecture and surveying
        • scaffolding hire (labour not included)
        • Carpet fitting
        • Delivery of materials
        • A canteen or other site facilities on a construction site that aren’t classed as construction themselves.
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        How to pay CIS

        Companies required to pay CIS must deduct a percentage of the payment from the subcontractor and pay that to HMRC (HM Revenue and Customs). This is called deduction at source.

        The Construction Industry Scheme (CIS) deduction rates are:

        • 20% for registered subcontractors
        • 30% for unregistered subcontractors
        • 0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made

        Construction CIS payments to HMRC can be made online, by post or over the phone. 

        Construction companies that don’t pay the CIS due are liable to penalties. So, it’s important to make sure you’re paying CIS correctly to avoid the headache of hefty fines. 

        If you’re not sure if you should be paying CIS or how to pay the tax, contact HMRC.

        Here are some other factors to think about with CIS taxes:

        • The CIS rules are complex so, if you’re unsure about anything, seek professional advice. 
        • HMRC has the authority to conduct checks to make sure you’re paying CIS correctly.
        • And don’t forget, if they find you are non-compliant with CIS, you may be liable to penalties. 

        By checking the eligibility criteria and following the CIS rules, you can make sure you’re paying the correct amount of tax to HMRC to avoid any risk of penalties. As tax and accountancy specialists, we’re here to help you understand CIS and register for the scheme. We can manage your CIS payments and make sure your construction projects are fully compliant and give you peace of mind that you’re crossing the t’s and dotting the i’s when it comes to tax. 

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