This is being attributed to crippling delays in receiving end-of-year tax refunds.
Data obtained by accountant Nixon Williams under the Freedom of Information Act reveals that 105,000 construction businesses were registered for gross payment in 2014/15, the highest level in four years.
At the same time, the number of construction businesses declined by 0.6%, from 253,121 to 247,105, although that number has increased again slightly in the past year.
According to Nixon Williams, more builders are choosing to register for gross payment status under the Construction Industry Scheme (CIS) due to worsening delays at HM Revenue & Customs paying annual tax refunds, despite making a commitment to do so in 25 working days. CIS subcontractors often overpay tax, and in many cases they are waiting six months or more, for refunds worth tens of thousands of pounds, which is causing cashflow problems, and even pushing some towards bankruptcy.
Subcontractors who register for the CIS have 20% of their pay deducted by contractors and handed over to HMRC, while unregistered subcontractors have 30% of their pay deducted by contractors.
Subcontractors can, however, apply for gross payment status when they register for CIS. This means contractors pay them in full, without deductions. Subcontractors then pay all their tax and National Insurance at the end of the tax year. Gross payment status imposes a heavier compliance burden on subcontractors, and so many do not register.
HMRC has promised a 25-day turnaround target for tax repayments but with staffing levels having been cut, and additional security checks imposed, that 25-day deadline is almost never met.
Nixon Williams practice manager Daniel Knowles said: “Delays receiving tax refunds of six months or more are becoming increasingly common. This is hurting the cashflow of many subcontractors, and in some cases impeding their ability to conduct business.
“As a result, growing numbers of subcontractors are being advised to register for gross payment status, allowing them to better manage their cashflow and avoid lengthening delays obtaining tax refunds. It is very common for subcontractors to have paid too much tax, and the last thing they need is to have to wait months and spend time chasing HMRC to get the money back.”
He adds: “Gross payment status was sometimes regarded as a mixed blessing. It allowed subcontractors to manage their own tax affairs but at the cost of a higher administrative burden and an annual review by HMRC. With delays over tax repayments mounting, growing numbers of subcontractors are realising that the extra hassle is now well worth the effort.”