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:
- Business Test: The construction work must be undertaken in the UK and run through a bank account.
- 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.
- 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
- 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.
If applying at the same time as registering for CIS:
- Sign in to Government Gateway.
- From ‘Your tax account’, go to ‘Other services’.
- Choose ‘Construction Industry Scheme – Subcontractors.
If applying after you register for CIS:
- Call the CIS helpline.
- Fill in a form.
- 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.
- Compliance Checks: HMRC will conduct checks to ensure you meet all the criteria for the GPS Compliance Test.
- 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.
- 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.