Understanding CIS Gross Status

CIS can be confusing for both contractors and subcontractors alike. Accounting for your CIS deductions can create issues when billing for your work. CIS gross status can help to alleviate the stress, but is it right for you?

What is CIS?

CIS stands for the Construction Industry Scheme. It is a tax compliance framework that applies to both contractors and subcontractors within the construction industry. When paying a subcontractor, contractors must deduct CIS from their pay, submitting this amount to HMRC. These CIS deductions are then applied as advance payments towards the contractor’s PAYE and NI tax balance.

CIS covers several areas of work, including the construction of both permanent and temporary buildings, civil engineering, and demolitions. On the other hand, surveying and the manufacture of building materials are exempt from CIS. GOV.UK have a CIS Guide which breaks down which services fall under the Construction Industry Scheme.

Contractors must register for CIS. Subcontractors do not have a legal obligation to register, but they will have a higher deduction rate if they do not.

The Construction Industry Scheme was introduced as an effort to reduce rates of tax evasion within the construction industry by enforcing mandatory reporting of payments to subcontractors. It is helpful, particularly for smaller contractors, as it enables them to split their tax liability throughout the year.

What are the CIS rates?

The rate at which CIS is deducted depends on each subcontractor’s tax treatment. The rates are as follows:

Tax Treatment Rate When does this apply?
Standard Rate 20% When a subcontractor has registered for CIS
Higher Rate 30% When a subcontractor has not registered for CIS
Gross Rate 0% When a subcontractor has registered for CIS and has been granted gross status

 

When you begin working with a subcontractor, you must verify them through the GOV.UK portal. To verify them you will need their name and UTR number. Verification gives you the subcontractor’s tax treatment.

Once verified, you will also receive a verification number. Most accounting software will require this when setting up a subcontractor as a supplier.

What does CIS Gross Status Mean?

CIS Gross Status sets the CIS rate at 0%. This means no CIS is deducted; contractors must pay a gross rate subcontractor in full.

Under this status, subcontractors can pay their PAYE & NI at the end of the tax year, rather than spread throughout. If you are reliant on cash flow, this can be very beneficial as you will no longer need to wait until the end of the year for the CIS to be refunded.

As the requirements to become eligible for gross payment status are quite strict, it can also show clients and contractors that you are reliable and financially responsible. This could help to sway a contract negotiation in your favour.

Am I Eligible for Gross Status?

To be eligible for CIS Gross Status, you must:

  • Do or provide labour for construction work in the UK
  • Have a business bank account
  • Have no outstanding balances with HMRC – PAYE, VAT and Corporation Tax/Self-Assessments must have been paid on time
  • Meet a minimum turnover within the last 12 months

The minimum turnover needed to be eligible is reliant on the type of business:

Type of Business Minimum 12-Month Turnover (excluding VAT)
Sole Trader £30,000
Partnership £30,000 per partner – £100,000 within the whole partnership
Limited Company £30,000 per director – £100,000 within the whole company

Please note, if your company has five or less directors, each must have an annual turnover of at least £30,000.

The turnover must be related to construction activities. Any non-construction turnover should be excluded.

Once gross status is granted, HMRC will continuously review your CIS. If you fail to comply with CIS rules (such as paying your tax on time) they can revoke your gross status.

How Can I Apply for CIS Gross Status?

You can apply for gross status online or by post.

Online submissions are done through the GOV.UK portal. You will be required to provide the UTR number, turnover, proof of turnover, and bank details. Additional information, such as your NI Number, and PAYE and VAT registration numbers, will also be requested.

If you cannot complete a submission online, you can apply by post. In addition to the information needed for an online submission, you must complete a form depending on your business type.

An agent (i.e., an accountant) can also submit a Gross Payment Status application on your behalf.

I am Unsure About Applying for CIS Gross Status – Can You Help?

At WKM Accountancy Services, we can assess your eligibility for CIS Gross Status and make the application on your behalf. We also offer other CIS-related services.

If you would be interested in this service, or require help with the other financial aspects of your business, please contact us.

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Vehicle Benefits In Kind Breakdown

If your company provides vehicles or fuel to its employees or directors, these could be classed as Benefits In Kind (BIKs).

BIKs are defined as an item of monetary value provided by a business that is not “wholly, exclusively, and necessary” to perform their duties. This essentially means that the item is also used outside of work. Examples include private healthcare and company cars.

Using this definition, if you have received a vehicle through a company and use it for personal mileage it will be a BIK. If the fuel costs are covered by the employer this is also a BIK.

Calculating Employee Benefits In Kind for Vehicles

When it comes to vehicles, the way the BIK tax owed by employees is calculated depends on the type of vehicle. Recent legislation changes to how vehicles are classified should be considered when assessing how you account for new vehicles.

Vans

Benefits for vans are calculated as flat rates which are multiplied by the individual’s tax band. For 2023/24, the annual Van Benefit charge is £3,960, whilst the Fuel Benefit Charge is £757.

A basic rate (20%) taxpayer would owe:

Van Benefit Charge = 3960*20% = £792

Van Fuel Benefit Charge = 757*20% = £151.40

Total Tax Owed = £943.40

Cars

Calculating the BIK for cars is more complicated as you must use a BIK percentage. This percentage is based on the vehicle’s CO2 emissions (or electric range for hybrid vehicles). The percentage may increase by 4% for diesel cars if they do not meet RDE2 standards. The BIK percentages have been frozen until the 2024/25 tax year.

To calculate the BIK tax on a car, you multiply the list price or P11D value of the car by the BIK percentage, then multiply again by your tax band. The Fuel Benefit for cars is calculated by multiplying the Car Fuel Benefit Multiplier by the BIK percentage, then multiplying again by your tax band. The multiplier for 2023/24 is £27,800. This is set by HMRC for each tax year.

Example

You are a basic rate taxpayer, who had received a non-RDE2 compliant diesel car from your company with a list price of £17,000 and CO2 emissions of 117 g/km. The tax you would pay is as follows:

BIK % = 28+4 = 32%

Annual Benefit In Kind (BIK) Tax = 17000*32%*20% = £1,088

Car Fuel Benefit Charge = £27,800*32%*20% = £1,779.20

Total Tax Owed = £2867.20

Paying for Benefits In Kind – Employers

BIKs are filed by employers using P11D forms. This will account for the benefit by increasing the individual’s salary. Employers will pay a National Insurance Contribution of 13.8% on the value of the BIK. The total BIKs per tax year must be reported by employers using a P11D(b) form, which summarises the benefits provided to all employees during the period. This must be submitted by 6th July following the period. For example, the P11D(b) form for the 2023/24 tax year must be submitted by 6th July 2024.

Paying for Benefits In Kind – Employees

Employees will likely pay for BIKs through their tax code. HMRC will amend the employee’s tax code to allow the tax owed to be deducted from their wages. It can, however, take time for the P11D submission to be processed and therefore you may receive a notice stating you have underpaid your tax for the year. HMRC will collect the due tax via an updated tax code in a future tax year, or by issuing a simple assessment which allows the tax to be paid in one lump sum.

 

If you have any further questions about how Benefits In Kind apply to your business, or you are unsure of how they affect your tax, contact us for guidance.

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Self-Assessment – How to Pay

With the deadline for Self-Assessment approaching, it’s important to know both how to make your payments, and when to pay them.

What is Self-Assessment?

The self-assessment allows HMRC to collect income tax. Untaxed income must be included on a self-assessment. It will cover a tax year. Tax years run from 6th April to 5th April in the following year.

Who Needs to Complete a Self-Assessment?

You will need to complete a self-assessment if you have income that needs to be taxed. Examples of individuals who need to submit a tax return include:

  • Those with untaxed income.
  • Sole traders who have earned more than £1,000 during the tax year.
  • Directors who have drawn dividends during the tax year.
  • Those receiving income from rental properties.
  • Those with a taxable income of over £150,000.
  • Those who must pay the High Income Child Benefit Charge.

If you are unsure whether you will need to submit a tax return, you can check here.

What are the Self-Assessment Deadlines?

It is important that your self-assessment is submitted on time to avoid penalties. The deadlines are as follows:

  • Notifying HMRC that you need to submit a tax return – 5th October.
  • Paper tax return submissions – 31st October.
  • • Online tax return submissions – 31st January.
  • Payment Deadline – 31st January.

Each of these deadlines relate to the following tax year. For example, if you started renting a property in May 2023, you would need to submit a 2023-24 self-assessment. You would need to notify HMRC of this by 5th October 2024. If you were to submit a paper return for this period you must do so before 31st October 2024, or 31st January 2025 if it was submitted online. Your tax return payment must be made by 31st January 2025.

How Do I Pay my Self-Assessment Tax Bill?

There are a variety of methods which can be used to pay HMRC. These include Direct Debit, Faster Payments, CHAPS, and by Cheque. HMRC provide a breakdown of how each payment method works, and what information you will need to make them. You can find this information here.

When paying your tax bill, you should include a specific payment reference. This will be your 10-digit Unique Taxpayer Reference (UTR), followed by the letter “K”. If the wrong reference number is used it can lead to payment delays. You can find your UTR number on your HMRC online account or letters you receive from HMRC.

Paying via Tax Code

If eligible, you can pay your self-assessment tax code using your PAYE tax code. This means that the tax you owe will be automatically collected from your salary like your usual tax deductions. This can only be done if you meet the following criteria:

  • Your total tax bill is less than £3,000.
  • You already pay tax through PAYE.
  • Your self-assessment was submitted before 31st October by post/30th December online.

You can’t pay using your tax code if your taxable income does not meet the PAYE threshold, if you would be paying more than 50% of your taxable income in tax, or you would be paying more than twice your usual tax deduction.

If you meet all the criteria, HMRC will automatically collect the tax through your tax code unless specified on your tax return.

Budget Payment Plan

A Budget Payment Plan can be set up with HMRC to make payments towards the tax bill throughout the year. You can choose how much you pay and how often (e.g. weekly or monthly). The amount paid through the plan will be deducted from your next tax bill. If the payments do not cover the bill in full, you will pay the remainder by the deadline on 31st January. If you have overpaid, you can request a refund.

You can only set up a Budget Payment Plan if your self-assessment payments are up to date. You can check whether you are eligible here.

What are Payments on Account?

Payments on account are advance payments which are made towards your tax bill. You will make two payments a year, each being half of the tax bill from the previous year’s tax return. These payments are due by midnight on 31st January and 31st July. If, at the year end, your tax bill is greater than the sum of the payments made, you must pay the difference by 31st January the following year. This is known as the balancing payment.

For example, if your tax bill for the 2023-24 tax year was £2,500, and the sum of the payments on account came to £2,000 in 2024, the payment you would make on 31st January 2025 would be £1,750. This is made up of:

  • £500 for the balancing payment for the 2023-24 tax year.
  • £1,250 for the first payment on account for the 2024-25 tax year.

Please note that Payments on Account do not include capital gains or student loan payments. These will always be included as a balancing payment.

If you know that your tax bill will be less than in the previous year (i.e. you are now renting out one property rather than two), you can apply to reduce your payments on account. This can be done online via the Government Gateway or by post. You can find more information about this here.

What Penalties can be Issued for Self-Assessments?

The penalties HMRC can issue for self-assessments fall into two categories: late filing and late payment. Both types of penalty can be incurred at the same time.

A late filing penalty of £100 will be charged if the submission is 1 day late. Further penalties will be applied after:

Period Penalty Applied
3 months £10 per day, for a maximum of 90 days
6 months The greater of 5% of the tax owed or £300
12 months The greater of 5% of the tax owed or £300

For late payments, the penalties will be applied after:

Period Penalty Applied
30 days 5% of the tax owed
6 months Further 5% of the tax owed
12 months Further 5% of the tax owed

If you receive a penalty which you disagree with you can appeal this with HMRC. Appeals must be made within 30 days of the penalty notice date and can be filed either online using a Government Gateway account or by post using an SA370 form. You can find more information about both methods here.

What Happens if I Over/Underpay?

No matter which payment method you use, if you overpay your tax bill, you will receive a refund from HMRC. If you have underpaid, interest will be charged. You will be able to track if your payments have been received on your HMRC online account.

 

If you have any further questions about paying your Self-Assessment tax bill, please contact us.

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