If you work under the Construction Industry Scheme (CIS), contractors normally take 20% off every labour payment before it reaches you. That money sits with HMRC until you file. Gross payment status stops the deductions entirely, so you get paid in full and settle your tax later through your own return.
For a lot of subcontractors that is the difference between a healthy cash position and constantly waiting on a CIS refund. This guide walks through exactly how to apply, which form you need (CIS302, CIS304 or CIS305), the three tests HMRC sets, and the tighter compliance rules that landed in April 2024 and April 2026.
It is written for sole traders, partnerships and limited companies doing construction work in the UK. If you would rather we handle the application and keep your status watertight, that is part of what we do for CIS contractors and subcontractors.
What is CIS gross payment status?
Under CIS, contractors deduct money from a subcontractor's labour payments and pass it to HMRC as an advance on the subcontractor's tax and National Insurance. The standard deduction is 20% if you are registered as a subcontractor, and 30% if you are not registered.
Gross payment status changes the rate to 0%. The contractor pays you in full, with nothing held back, and you account for all your tax and National Insurance at the end of the year through Self Assessment (sole traders and partnerships) or your Corporation Tax return (companies).
It does not change how much tax you ultimately pay. It changes the timing, so the cash stays in your business through the year instead of being parked with HMRC until you file and reclaim.
Which form do I use: CIS302, CIS304 or CIS305?
The form depends on how your business is structured. All three let you register as a CIS subcontractor and apply for gross payment status at the same time.
| Your business type | Form | What it does |
|---|---|---|
| Sole trader | CIS302 | Register as a sole trader subcontractor and apply for gross payment status |
| Partnership | CIS304 | Register the partnership as a subcontractor and apply for gross payment status |
| Limited company | CIS305 | Register the company as a subcontractor (payment under deduction or gross payment) |
You can apply online through HMRC's CIS service using your Government Gateway sign-in, or by completing the paper version of the form and posting it to PT Operations North East England, HM Revenue and Customs, BX9 1BX. The online route is quicker and is HMRC's preferred method.
If you are a limited company, getting the structure and the application right from the start matters. We cover this as part of our work for limited companies.
What are the three tests for gross payment status?
HMRC will only grant gross payment status if your business passes all three of the following tests. Fail one and the application is refused.
The business test
Your business must do construction work, or provide labour for construction work, in the UK, and it must be run through a bank account. HMRC wants to see that you are a genuine construction business operating through proper banking, not cash in hand.
The turnover test
HMRC looks at your net construction turnover in the 12 months before you apply. Net turnover means your income from construction work excluding VAT and excluding the cost of materials, so it is your labour and plant income, not the headline invoice total.
The threshold depends on your structure:
| Business type | Net construction turnover needed (last 12 months) |
|---|---|
| Sole trader | At least £30,000 |
| Partnership | £30,000 for each partner, or £100,000 for the whole partnership |
| Company | £30,000 for each director, or £100,000 for the whole company |
The £100,000 figure is the alternative turnover test, useful where you have several partners or directors and would struggle to show £30,000 each. A company controlled by five people or fewer needs £30,000 for each of those people.
The compliance test
This is the one that catches people out. HMRC checks that, over the 12 months before you apply, you have filed your returns and paid your tax on time. That covers your Self Assessment or Corporation Tax, PAYE and National Insurance if you employ people, your CIS returns if you are also a contractor, and, since 6 April 2024, your VAT returns and payments if you are VAT registered.
HMRC does allow some minor slips. Broadly, it can overlook up to three CIS monthly returns filed up to 28 days late, up to three VAT returns up to 28 days late, and a handful of small late payments, with any tax payment under £100 disregarded. Four or more late returns, a payment of £100 or more made more than 14 days late, or anything still outstanding at the date you apply will normally fail the test. The tolerances are tight, so it pays to be clean before you apply rather than hope a late filing slides through.
How do I apply for CIS gross payment status?
The process is the same shape whichever form you need. Here is the order we work through with clients.
- Check you pass all three tests first. Confirm your last 12 months of net construction turnover clears the threshold, that your banking is in order, and that there are no late returns or unpaid liabilities sitting on your record. Fixing a compliance problem before you apply is far easier than appealing a refusal.
- Gather your details. You will need your Unique Taxpayer Reference (UTR), National Insurance number (for individuals), company registration number and Corporation Tax UTR (for companies), VAT registration number if relevant, PAYE reference if you employ staff, and your business bank account details. Have evidence of turnover ready, such as invoices, contracts or bank statements, in case HMRC asks.
- Apply online or by post. Sign in to the CIS service with your Government Gateway details and complete the relevant journey, or fill in CIS302, CIS304 or CIS305 on paper and post it. The online form must be completed in one session because you cannot save your progress part way through.
- Wait for HMRC's decision. HMRC runs the turnover and compliance checks and tells you whether gross payment status is granted. If it is refused, you have the right to appeal, normally within 30 days of the decision.
If you are already registered for CIS under deduction and want to move up to gross payment, you do not start again from scratch, you apply to change your status, and the same three tests apply.
Illustrative example: a sole trader bricklayer applies
Illustrative example. Imagine Tomasz is a self-employed bricklayer registered for CIS under deduction. Over the last 12 months his invoices to contractors totalled £58,000, of which £14,000 was materials he bought in. His net construction turnover for the turnover test is £44,000 (£58,000 less the £14,000 of materials), comfortably above the £30,000 sole trader threshold.
He files his Self Assessment on time and has no outstanding tax. He is not VAT registered, so the VAT part of the compliance test does not apply to him. He runs everything through his business bank account.
Tomasz passes all three tests. He completes form CIS302 online, applies for gross payment status, and HMRC grants it. From then on his contractors pay him in full with no 20% deduction. On a typical £4,000 labour payment, that is £800 that now stays in his account through the year instead of going to HMRC and waiting to be reclaimed. He still owes the same tax overall, but he settles it through his own return rather than financing HMRC in advance.
These figures are illustrative. Your own turnover test result depends on your actual income and materials split, and your status depends on a clean compliance record.
What changed in April 2024 and April 2026?
Gross payment status has been tightened twice in quick succession, and both changes are now in force for 2026/27.
From 6 April 2024, VAT compliance was added to the statutory compliance test for both getting and keeping gross payment status. If you are VAT registered, late or unpaid VAT returns can now cost you your status in the same way late CIS or PAYE has always done. HMRC has been applying this strictly. The same reform also gave HMRC the power to cancel gross payment status immediately where it has reasonable grounds to suspect fraudulent returns or information relating to VAT, PAYE, Income Tax Self Assessment or Corporation Tax Self Assessment.
From 6 April 2026, the rules went further. Where HMRC can show that a business knew or should have known that a payment it made or received was connected with the fraudulent evasion of tax, HMRC can cancel its gross payment status immediately, make the business liable for the lost tax, and charge a penalty of 30% of that lost tax to the business and its directors. The time limit before you can reapply after an immediate cancellation has risen from one year to five years. These measures were announced at Budget 2025 and legislated in Finance Bill 2025-26.
The practical message is the same for both changes. Keep your own filings clean, and do proper due diligence on the businesses above and below you in the supply chain, because a problem elsewhere in the chain can now reach your status.
How do I keep gross payment status once I have it?
Gross payment status is not granted once and forgotten. HMRC reviews it, and an ongoing compliance review can strip it away if your filing and payment record slips. The same compliance test you passed to get it is the test you keep meeting to hold it.
In practice that means filing every CIS, VAT, PAYE and Self Assessment or Corporation Tax return on time, paying every liability by its due date, and not letting small amounts drift past their deadlines. Losing gross payment status drops you back to 20% deductions, which hits your cash flow immediately and can be awkward to explain to contractors who chose you partly because you were gross.
Keeping on top of all those moving deadlines is exactly where an accountant earns their keep. We manage CIS, VAT and the year-end filings together for construction businesses so nothing slips through.
Want to apply for gross payment status, or protect the status you already have? Book a free call with a Zmartly accountant and we will review where you stand and handle the application for you.
Frequently asked questions
What is the turnover threshold for CIS gross payment status?
You need net construction turnover of at least £30,000 in the 12 months before you apply. Net turnover excludes VAT and the cost of materials. Partnerships need £30,000 per partner or £100,000 in total, and companies need £30,000 per director or £100,000 in total.
Which CIS form do I use to apply for gross payment status?
Sole traders use form CIS302, partnerships use CIS304, and limited companies use CIS305. Each form registers you as a CIS subcontractor and applies for gross payment status in one go. You can apply online with your Government Gateway sign-in or by posting the paper form.
How long does it take to get CIS gross payment status?
HMRC runs the turnover and compliance checks after you apply and then tells you whether status is granted. There is no fixed statutory timeframe, so apply with a clean record and your details ready to avoid delays. If HMRC refuses, you can usually appeal within 30 days of the decision.
Can late VAT returns affect my gross payment status?
Yes. Since 6 April 2024, VAT compliance forms part of the statutory test for getting and keeping gross payment status. If you are VAT registered, late or unpaid VAT returns can cost you your status, the same as late CIS or PAYE filings. Minor slips within HMRC's tolerances may be overlooked, but the limits are tight.
What does 0% deduction under CIS mean?
It means contractors pay you in full with no CIS deduction taken from your labour payments. You then account for all your tax and National Insurance yourself through Self Assessment or your Corporation Tax return. The standard rates are 20% for registered subcontractors and 30% for unregistered ones, so gross payment status of 0% keeps more cash in your business through the year.
