Gross payment status means contractors pay you in full, with nothing deducted. No 20% held back, no waiting until the year end to get it returned.
On £2 million of construction turnover, most of it labour, that is a six figure sum staying in your account through the year instead of sitting with HMRC. It is the single biggest cash flow lever available to a subcontractor.
The three tests
You have to pass all three. HMRC checks them when you apply and again every year afterwards.
1. The business test
Straightforward for anyone genuinely trading. You carry on a business in the UK, that business consists of construction work or supplying labour for it, and it is run through a bank account.
2. The turnover test
Measured on net construction turnover for the previous 12 months, which means excluding VAT and excluding the cost of materials. That is the figure people get wrong. A firm turning over £180,000 with £90,000 of materials in it is being tested on £90,000.
| Structure | Threshold |
|---|---|
| Sole trader | £30,000 |
| Partnership | £30,000 per partner, or £100,000 for the firm |
| Limited company | £30,000 per director, or £100,000 for the company |
The alternative aggregate figure of £100,000 is what lets a company with several directors qualify without hitting £30,000 for each of them.
3. The compliance test
This is the one that fails people. Everything filed and paid on time for the previous 12 months. All of it, not just the construction taxes.
- Self Assessment or corporation tax returns
- PAYE and National Insurance
- CIS monthly returns
- VAT returns and payments
One late CIS return, one PAYE payment that went a week over, and the application fails. There is some tolerance built in for minor slips, but it is discretionary and you should not plan around it.
Applying
You apply online through your Government Gateway account, or by phone. A company applies for the company. A sole trader applies for themselves.
HMRC checks the three tests against what they already hold, so most of the answer is decided before you press submit. Approval, when it comes, is usually quick.
If you are turned down, you get told which test failed. A compliance failure is fixable and worth fixing. Twelve clean months and you reapply.
It gets reviewed, and it can be taken away
Most people who lose gross payment status did not know it was under review.
HMRC runs an annual check on your compliance record. Fall short and they write to you giving 90 days’ notice of removal. From that date contractors deduct 20% again, and your cash flow changes overnight while your commitments do not.
You can appeal within 30 days of the notice. What you cannot do is find out about it when a payment arrives short.
Practically, holding gross payment status turns filing deadlines from an admin task into a cash flow control. That is the argument for having someone run them properly, and it is most of what we do on our CIS service.
What it is worth
Take a groundworks company turning over £2m, with £1.4m of that labour after materials.
At 20%, £280,000 is deducted across the year and sits with HMRC until it is offset against PAYE month by month or reclaimed at the year end. Some of it comes back quickly. Some of it sits for months.
With gross payment status, none of it leaves. You are funding your own work in progress instead of borrowing to cover a gap created by a tax deduction on money you have already earned.
Questions we get asked
What is gross payment status?
CIS registration that lets contractors pay you without deducting anything. You pay your tax through the normal route at the year end instead of having it taken at source.
How do I apply for gross payment status?
Online through your Government Gateway account or by phone to HMRC. You need to pass the business, turnover and compliance tests, all of which HMRC checks against records they already hold.
What is the turnover threshold for gross payment status?
£30,000 of net construction turnover for a sole trader. For a partnership or company, £30,000 per partner or director, or £100,000 for the whole business. Net means excluding VAT and excluding materials.
Why was my gross payment status application refused?
Usually the compliance test. A late return or a late payment in the previous 12 months is enough. HMRC tells you which test failed, and after twelve clean months you can apply again.
Can HMRC take gross payment status away?
Yes. Your compliance record is reviewed annually. If you fail, HMRC gives 90 days’ notice of removal and contractors go back to deducting 20%. You have 30 days from the notice to appeal.
Do contractors still need to verify me if I have gross payment status?
Yes. Verification is how the contractor confirms your status and evidences paying you in full. You still appear on their monthly returns, with nothing deducted.
If compliance is what is standing in the way
It is fixable, and given what the status is worth on a £2m turnover, it is worth fixing. Twelve months of returns filed on time and payments made when they are due is the whole requirement.
Have a look at how we handle CIS, or book a call and we will look at where your compliance record stands now.