If you're a construction subcontractor, the Construction Industry Scheme (CIS) probably takes a 20% bite out of every invoice before the money reaches your bank. That cash isn't lost, but it's tied up with HMRC until you reconcile it at the end of the year. For a growing trade business, that's a serious drag on cash flow.
CIS gross payment status fixes this. With it, contractors pay you the full amount, no deduction taken at source. You settle your tax later, the normal way. It can transform how much working capital you have to run jobs, buy materials and pay your own people.
This guide walks through what gross payment status is, the three tests HMRC uses to decide whether you qualify, exactly how to apply, and the compliance traps that cost subcontractors their status. There's a worked example with current figures so you can see the cash-flow difference for yourself.
It's written for sole traders, partnerships and limited companies doing construction work in the UK under CIS.
What is CIS gross payment status?
CIS gross payment status is a designation HMRC gives to subcontractors it trusts to manage their own tax. Once you have it, contractors pay your invoices in full, with no money withheld at source.
You still pay every penny of tax and National Insurance you owe. The difference is timing. Instead of the contractor handing part of your money to HMRC on account each month, you report your income and pay your bill at the normal deadlines, through Self Assessment if you're a sole trader or partner, or through your Corporation Tax return if you trade through a limited company.
So it isn't a tax saving. It's a cash-flow advantage, and for a busy subcontractor that distinction matters a lot.
How much does CIS deduct without gross status?
Under CIS, contractors deduct money from the labour element of your invoices and pay it to HMRC on your behalf. The rate depends on your status:
| Your CIS status | Deduction taken from labour | What it means |
|---|---|---|
| Gross payment status | 0% | Paid in full, settle tax later |
| Registered (net) | 20% | Standard deduction for registered subcontractors |
| Not registered for CIS | 30% | Higher rate until you register |
A subcontractor who hasn't registered for CIS faces a 30% deduction. Once registered, that drops to the standard 20%. Gross status removes the deduction entirely.
The deduction applies to your labour charge, not to the cost of materials, plant hire or VAT. Source: GOV.UK, What you must do as a CIS subcontractor.
What does gross status do for your cash flow?
The best way to see the benefit is with numbers. Here's a clear, illustrative example using current figures.
Illustrative example: Tom, a sole-trader bricklayer (2025/26)
Tom invoices a main contractor £4,000 a month for labour. Over a year that's £48,000 of labour income.
On standard 20% net status, the contractor withholds 20% of each labour invoice and pays it to HMRC:
- Monthly invoice: £4,000
- Deduction at 20%: £800
- Tom receives each month: £3,200
- Withheld across the year: £800 x 12 = £9,600
So £9,600 of Tom's money sits with HMRC through the year. He gets it back as a credit against his tax bill when he files his Self Assessment return, but in the meantime it's not available to buy materials or cover wages.
With gross payment status, the contractor pays the full £4,000 each month. Tom keeps all £48,000 of labour income during the year and pays his actual tax and Class 4 National Insurance when his Self Assessment is due.
His total tax bill is the same either way. What changes is that up to £9,600 stays in his business bank account, working for him, instead of being parked with HMRC for months. For Class 4 NIC, the main rate is 6% on profits between £12,570 and £50,270 for 2025/26 (source: GOV.UK, Self-employed National Insurance rates).
For a limited company, the principle is identical, but the company's profits are taxed through Corporation Tax at 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief in between for the 2025 and 2026 financial years (source: GOV.UK, Corporation Tax rates).
The figures above are illustrative only and assume the contractor applies the standard 20% deduction to labour. Your own numbers will depend on your invoicing and your tax position.
What are the three tests to qualify?
To get gross payment status, HMRC applies three tests. You need to pass all of them.
The business test
Your business has to do construction work, or supply labour for it, in the UK. It also has to be run through a bank account. HMRC wants to see a genuine, properly run construction business with a business bank account behind it. Source: GOV.UK, How to get gross payment status.
The turnover test
You need to show enough net construction turnover in the last 12 months. "Net" here means your turnover excluding VAT and the cost of materials. The thresholds are:
| Business type | Turnover threshold (excluding VAT and materials) |
|---|---|
| Sole trader | At least £30,000 |
| Partnership | £30,000 per partner, or £100,000 for the whole partnership |
| Limited company | £30,000 per director, or £100,000 for the whole company |
For a company controlled by five people or fewer, HMRC looks for at least £30,000 for each of those people. Source: GOV.UK, How to get gross payment status.
The materials point trips people up. If you bill £40,000 but £15,000 of that was materials, your net construction turnover is £25,000, which is below the £30,000 sole-trader threshold. Strip out materials and VAT before you check whether you qualify.
The compliance test
This is the one that catches most applicants. HMRC checks that you've met your tax obligations on time. That means:
- All your tax returns filed on time (Self Assessment, Corporation Tax and CIS returns as relevant)
- All tax, National Insurance and CIS deductions paid by their due dates
- No outstanding returns or payments at the time you apply
From 6 April 2024, HMRC added VAT to the compliance test, so your VAT returns and payments now count too if you're VAT-registered. Source: GOV.UK, How to get gross payment status.
HMRC does allow a small tolerance for minor slips. In practice it permits a limited number of payments or returns that are only slightly late within the qualifying period, but a single payment that's significantly late, or repeated lateness, will fail the test. The safest approach is simple: file and pay everything on time, every time.
How do you apply for gross payment status?
You can apply when you first register for CIS, or later once your business has the turnover and the compliance history to qualify. The route depends on your structure.
- Check you meet all three tests first. Confirm your net construction turnover (excluding VAT and materials), that you have a business bank account, and that every return and payment is up to date.
- Apply through the right channel. Sole traders can apply online through their HMRC Government Gateway account. Limited companies and partnerships use the relevant CIS registration route, including the company registration form (CIS305) for companies. Applying for gross status also registers you for CIS if you haven't already registered.
- Wait for HMRC's decision. HMRC reviews your application against the three tests and writes to confirm whether you've been granted gross status.
- Tell your contractors. Once you have gross status, contractors will verify you with HMRC and start paying you in full. They check your status when they verify you, so make sure they re-verify if your status changes.
If you're not sure your compliance record is clean enough, it's worth getting it checked before you apply. A refusal can be frustrating, and you'll want to fix any gaps first.
How does HMRC review and cancel gross status?
Gross status isn't permanent. HMRC carries out a scheduled review, usually once a year, looking back over your recent compliance. This is sometimes called the Tax Treatment Qualification Test.
At that review, HMRC checks the same compliance behaviour as the initial application: returns filed on time and tax, NIC, CIS and VAT paid on time. There's a limited tolerance for minor, occasional lateness. The widely applied benchmarks are that HMRC will tolerate up to three CIS or PAYE payments that are no more than 14 days late, and a small number of slightly late returns. But four or more late payments, or any single payment more than 14 days late, will typically fail the review.
If you fail, HMRC can cancel your gross status and move you back to the 20% net deduction. You'll usually get notice, and there's a right of appeal, but losing it can disrupt cash flow at short notice, especially as the rules around regaining it have tightened. Source: GOV.UK, How to get gross payment status.
The lesson is straightforward. Getting gross status is one job. Keeping it is an ongoing discipline.
Common mistakes that cost subcontractors their status
In practice, the same handful of issues come up again and again.
- Counting materials in the turnover figure. People add materials and VAT to their turnover, assume they clear £30,000, then fail the test when HMRC strips those out. Always work from net construction turnover.
- A single late PAYE or CIS payment. One payment more than 14 days late can be enough to fail a review. Direct debits and calendar reminders pay for themselves here.
- Forgetting VAT now counts. Since 6 April 2024, a late VAT return or payment can put your gross status at risk. If you're VAT-registered, that side of your housekeeping has to be just as tidy.
- Letting a return slip during a busy season. Construction is seasonal, and admin is easy to drop when you're flat out on site. Missed CIS monthly returns and a late Self Assessment are classic triggers.
- Not reconciling deductions. If you're still on net status, failing to claim back the 20% withheld means you can overpay tax for the year. Keep every CIS payment and deduction statement.
Most of these are avoidable with good systems and timely filing. If your books and deadlines are under control, gross status is well within reach for a profitable construction business.
Want help getting (or keeping) CIS gross payment status? Zmartly works with construction subcontractors every day, from sole-trader CIS contractors to growing construction companies. We'll check your turnover and compliance record, handle the application, and keep your filings on time so you don't lose status at the annual review. Want to sense-check your numbers first? Try our self-employed tax calculator.
Whether you trade through a company and want your Corporation Tax handled cleanly, or you want broader tax advisory on the most tax-efficient way to run your construction business, we can help.
FAQs
Does gross payment status mean I pay less tax?
No. You pay exactly the same tax and National Insurance overall. Gross status changes the timing, not the amount. Instead of the contractor deducting 20% at source, you keep the full payment and settle your tax at the normal deadlines. The benefit is cash flow, not a lower bill.
What's the turnover threshold for CIS gross payment status?
A sole trader needs at least £30,000 of net construction turnover in the last 12 months, excluding VAT and materials. A partnership or company needs £30,000 per partner or director, or £100,000 for the whole business. Always strip out materials and VAT before checking whether you qualify.
Why did HMRC refuse or cancel my gross payment status?
The most common reason is the compliance test. Late returns or late payments of tax, NIC, CIS deductions or VAT can fail it. Since 6 April 2024, VAT obligations count too. A single payment more than 14 days late, or repeated lateness, can be enough to lose status at the annual review.
Can a brand new construction business get gross status?
It's harder, because the turnover test looks at the last 12 months and the compliance test needs a track record. A genuinely new business may not yet have the turnover or history to qualify, so many subcontractors start on the standard 20% net deduction and apply for gross status once they've built up turnover and a clean compliance record.
How long does gross payment status last?
There's no fixed expiry, but HMRC reviews it regularly, usually once a year, through a scheduled compliance check. If your filing and payment record stays clean, you keep it. If you slip on returns or payments, HMRC can cancel it and put you back on the 20% deduction.
