CIS Gross Payment Status – difficult to get – easy to lose?
How to get gross payment status….
Subcontractors working in the construction industry will be aware of the hoops a business has to go through to obtain Gross Payment Status (GPS) in respect of the payments they receive from contractors. A business will have to prove that it is involved in construction operations, satisfy HMRC that its “construction turnover” exceeds £30,000 for a sole trader or £30,000 per partner or director for firms and limited companies, and be able to prove that all tax returns and payments are up to date.
….and how to lose it
Passing those tests is, however, not the end of the story. HMRC will conduct regular checks to ensure that a business continues to qualify for gross payment status. These “scheduled reviews” should take place automatically at least once in any twelve month period. HMRC’s guidance to subcontractors is somewhat vague as to the nature of the scheduled review and gives no detail of the circumstances that might lead to a business losing its GPS. However, more detailed guidance is contained within the CIS regulations and HMRC’s internal manuals. From these sources we note that a business will fail the scheduled review if:
- any contractor returns have been late on four or more occasions;
- any one contractor return is over 28 days late;
- any PAYE or CIS payments have been late on four or more occasions;
- any one PAYE or CIS payment is more than 14 days late;
- any self-assessment payment is more than 28 days late;
- any Corporation Tax payment is more than 28 days late, or is outstanding at the date of the review;
- a P35 is still outstanding at the time of the review;
- any self-assessment return (income tax or Corporation Tax is outstanding at the time of the review; or
- any payment of £100 or more due to HMRC is outstanding at the time of the review.
The sheer number of possible situations that could give rise to a “scheduled review failure” makes it easy for a business to put its GPS in jeopardy – especially as the review process is largely automated. Four or more late contractor returns, for example, will trigger an automatic “ad hoc” review irrespective of when the next scheduled review is due to take place.
Dealing with review failures
Although the circumstances that can give rise to the removal of GPS are many, HMRC does have to follow a set procedure before pulling the plug. There is a 90 day notice period that must be served before GPS is revoked and a subcontractor has the right of appeal against the decision.
HMRC must also write to any contractors who have made payments to the subcontractor in the previous 2 years to advise them of the change at least 35 days in advance.
A cautionary tale…
In these days when much of HMRC’s CIS output is automated you might think that it would be impossible for HMRC to cancel GPS without the appropriate notice being produced by the system. However, errors are more common than you might think.
The first notice that an overseas-based client had that their GPS had changed was when they received a payment from a contractor from which a significant amount of tax deducted. HMRC had rectified the position but not before the contractor had deducted a six-figure sum after following the verification process.
The reason for the removal of GPS status has yet to be established but with no formal notice having been served either to the subcontractor or the contractor, the fact that GPS was revoked and restored within a relatively short period of time suggests a major error on the part of HMRC – one which has left a client out of pocket.
So always ensure that HMRC has up to date contact details and be alert for any unexpected deductions from amounts through CIS - once lost GPS can be difficult to get back.