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Are you a construction worker who plans to remain in the industry in the future? If so, there are many ways that you can increase your earnings, including becoming self-employed. Many qualified construction workers choose to operate in this way rather than being permanently employed, as it gives them flexibility and more control of their finances in addition to increased earnings.
The advantages of having a limited company
Thousands of construction workers opt for the security and tax saving advantages of a CIS registered limited company. If you operate outside IR35 legislation, it can be one of the best ways to work as a self-employed construction worker and maximise your take home pay.
When you operate outside IR35 through a limited company, you have the ability to claim business related expenses through the company, and receive tax relief on them; this includes Travel & Subsistence, an expense that contractors who operate inside IR35 cannot claim. Read our article about what expenses can I claim through a limited company.
By having a CIS registered limited company, you also have the opportunity to apply for gross payment status. Once the limited company is on gross payment status, you can enjoy being paid your total income (excluding VAT) by your client while only paying taxes and National Insurance contributions on a quarterly basis. This gives you more financial control than being deducted 30% (non CIS registered) or 20% (CIS registered) up-front.
What is required to apply for gross payment status?
You may have the option to apply for gross payment status and reduce the CIS deductions down to 0%, but HM Revenue & Customs (HMRC) will look at your limited company turnover for the last 12 months and require your company to meet some criteria in order to consider this. Your limited company will need to meet the following HMRC requirements:
- Business test – you must show that you provide construction services in the UK and you operate your business through a business bank account.
- Turnover test – your turnover must be at least £30,000 per Director of the limited company
- Compliance test – you must prove that you have previously paid your tax and National Insurance contributions on time
These are simple tests and you can use a specialist CIS contractor accountant such as Churchill Knight & Associates Ltd to guide you through the process of applying for gross payment status.
We can support you through the operation of your CIS registered limited company and help advise you on the best way to maximise your take home pay. Churchill Knight has been helping contractors operate their limited companies since 1998, making us industry experts in specialist contractor accounting.
Are there other options?
Working in construction as a contractor also gives you the option to work under an umbrella scheme. Working through an umbrella company under the CIS scheme can be an easy short-term solution, however many agencies will not work with contractors under a CIS umbrella solution, as this model comes with some liability that could transfer back to the agency.
Organisations representing the construction industry may also try to ban umbrella companies as a payroll option for CIS registered contractors; this has already happened in Wales.
If you choose the umbrella payroll option, you may find that you will need to switch to a different umbrella company each time you take on a new contract. This can be a hassle when you are trying to focus on obtaining new contracts and providing quality construction services.
Most work carried out in the construction industry falls under the CIS scheme, so choosing the right payroll option for your needs is important. With this being said, in many cases the long-term advantages of operating a CIS registered limited company far outweigh using an umbrella company.
Further benefits of using a CIS registered limited company
By operating a limited company, recruitment agencies are more likely to put you forward for new roles, as being a Director of a limited company offers more credibility and legitimacy as a self-employed worker than using an umbrella company. Operating through your own limited company will also allow you to legally maximise your take home pay through tax relief and give you a more secure and controlled way to be paid.
With our all-inclusive CIS accountancy service, we can set up your limited company within 24-hours free of charge, help you set up your business bank account, register you for the CIS scheme as well as VAT and PAYE, and guide you through the process of operating your limited company on a day to day basis. We will also help you complete bookkeeping and payroll, advise you when you need to pay your tax and National Insurance contributions, and assist you in applying for gross payment status as part of our CIS service.
If you would like a more in-depth explanation of the CIS scheme and how we can help you register quickly and without hassle, give our consultants a call on 01707 871622 for a free no obligation consultation. Alternatively, click the buttons below to find out more about our CIS service or to request a callback.
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The Churchill Knight blog is regularly updated with helpful content for contractors and freelancers – especially articles that answer the most frequently asked questions about umbrella companies! Please pop back shortly to see the latest articles written by Andrew Trodden (Marketing Manager) and Clare Denison (Marketing Executive).