Your CIS Payroll Quickfire Questions Answered

Today we are going to answer some of the public’s most searched questions around CIS payroll. So Nick, here are your starters for 10! Starting simply, what is CIS payroll?

CIS payroll generally refers to a payroll company or a contracting intermediary business that specialises in the Construction Industry Scheme (CIS) and manages the CIS reporting or tax arrangements for both the sub-contractor and the contractor.

Does a limited company need to be CIS registered?

If it works in the construction industry, then yes, it does.

Do contractors get paid for holidays?

A genuinely self-employed individual who works on a self-employed basis does not get paid for holidays. An employee is entitled obviously to receive holiday pay – as is a worker who has an intermediary class of employment (halfway between the genuinely self-employed and an employee).

So, an employee gets holiday pay; a worker who is subject to the supervision, direction and control in how he operates – and is part and part of the organisation for whom they are working – is also entitled to holiday pay, but a genuinely self-employed subcontractor does not.

How do I register for CIS as a contractor?

You can register for CIS as a contractor through the HMRC Government Gateway account. You go into your own account there and there is a route which you have to follow. You can also take advice from the CIS helpline, which is 0300 200 3210.

CIS vs PAYE – what’s the difference?

One presumes that we are concerned about the difference in payment methods. Both are methods of treatment of earnings for tax purposes. So they are both methods of Taxation. PAYE applies to all employees, so anyone who is an employee must be taxed through the PAYE system. Occasionally some workers or self-employed individuals are taxed through PAYE but that’s fairly uncommon.

The Construction Industry Scheme or CIS is a specific tax regime for the self-employed who work in the construction industry. They can be paid one of three ways: they could be paid gross, having applied for – and received – Gross Payment Status; they are paid under deduction, which is the normal method for a self-employed sub-contractor to be paid, and they are deducted 20% of their earnings, if they known to the Revenue, which go towards their tax bill; or if the individual is not known to the tax authorities, they are deducted 30%. Both of those figures – 20% or 30% – are set against their tax burden for the year. So that’s the difference; the genuinely self-employed are paid through CIS, and employees and occasional workers are paid through PAYE.

How do I apply for gross payment status?

You have to pass a series of tests through the portal, through your government Gateway account. You then log on to the CIS element and there are a number of tests, which you have to pass. You’ll need to show that:

  • you’ve paid your tax and National Insurance on time in the past
  • your business does construction work (or provides labour for it) in the UK
  • your business is run through a bank account

HMRC will then look at 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

If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.
The important thing to note is that you could be fined if you provide false information, and so could anyone who helps you to make a false registration.

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What is meant by CIS gross payment status?

CIS gross payment status means that as a subcontractor within the construction industry scheme, you are not subject to any deduction from the payments that you receive for the labour element of the invoices that you raise, or that you are due.

Let’s look at an example; John is a self-employed builder with gross payment status under CIS. He’s working on a construction project for a contractor named Bespoke Builds.

Without Gross Payment Status:

If John didn’t have gross payment status, Bespoke Builds would pay him £1,000 for his construction work.

Bespoke Builds would deduct 20% for tax (£200) and send that amount to HMRC. John receives £800.

With Gross Payment Status:

Now that John has gross payment status, Bespoke Builds pay him the full £1,000 without deducting any tax.

John receives the entire £1,000 upfront.

Tax Payment:

Since John has received the full amount without tax deductions, he’s responsible for managing his own tax affairs.

John needs to set aside a portion of the £1,000 to cover his tax liability.

At the end of the tax year, John will need to file a Self Assessment tax return with HMRC, reporting his income and expenses.

Based on his overall earnings and allowable expenses, John will calculate the actual amount of tax he owes.

If he has set aside enough money, he can use it to pay his tax bill. If not, he may need to pay the remaining amount.

In summary, gross payment status in CIS allows contractors like John to receive full payments for their work and manage their own tax responsibilities.

And finally, what is meant by CIS penalties?

Generally speaking the penalties within the CIS relate to the late submission of a CIS 300 return by a contractor within the scheme. So a contractor who is registered with the CIS must submit a monthly return to tell HMRC who he has paid within the CIS scheme, and what tax he has deducted.

Late submission of that CIS return by just one day will mean he is subject to a £100 penalty by HMRC. If the return is still not submitted after two months, there’s another £200 penalty. If the return is still not submitted by six months, then it’s a further £300 penalty, or 5% of the liability – whichever is the greatest. And if it remains unsubmitted after 12 months, further penalties apply up to £3,000, or in total, depending on the circumstances of the reason for the late payment. So that’s what it refers to in general terms. It’s a late submission of the CIS 300.

 

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Nick Pilgrim

M.D. | CIS Payroll Expert
01245 493832

Nick loves nothing more than chewing the fat over CIS payroll queries – actually that’s not strictly true; he likes playing golf and driving round Europe, but pick up the phone to him anyway!

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