If you are a CIS subcontractor paid gross, your cash flow depends on it. Gross payment status means contractors pay you in full, with no 20% or 30% deduction taken at source, and you settle your tax later through Self Assessment or Corporation Tax.
So the question on a lot of subcontractors' minds this year is simple. With HMRC tightening the rules around fraud and VAT, am I about to lose that status?
The honest answer for most compliant subcontractors is no. The changes are aimed squarely at serious non-compliance and supply-chain fraud, not at people who pay a return a few days late. But there are real new powers, a VAT test you cannot ignore, and a much harsher ban for fraud from 6 April 2026.
This guide explains what actually changed, what still triggers cancellation, and how to keep your status watertight. It is written for CIS subcontractors and the contractors who pay them. If you want this monitored for you, that is what we do for CIS contractors.
What does gross payment status mean and why does it matter?
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor's payments and pass it to HMRC as an advance towards the subcontractor's tax and National Insurance.
The rate depends on the subcontractor's status:
| Subcontractor status | CIS deduction taken at source |
|---|---|
| Gross payment status | 0% |
| Registered under CIS | 20% |
| Not registered under CIS | 30% |
With gross payment status, you take the full invoice and account for your tax later. Without it, 20% (or 30%) is held back on the labour element of every payment, which is a serious drain on working capital for a business that has wages, materials and plant to fund.
That is why losing it hurts. You do not lose the money permanently, but a 20% deduction across every job until your next tax return can wreck cash flow. Keeping gross payment status is, for many subcontractors, the single most important compliance job of the year.
To get it in the first place, HMRC applies three tests: a business test (you do construction work in the UK), a turnover test (broadly £30,000 of net construction turnover for a sole trader, with per-partner and per-director versions for partnerships and companies), and a compliance test on your tax history. The 2026 question is mostly about that last one.
What changed for gross payment status in 2026?
Two things matter here, and it helps to keep them separate.
First, from 6 April 2024 HMRC added VAT to the compliance test for gross payment status. Before that, the test looked at your CIS, PAYE, Income Tax and Corporation Tax behaviour. Now your VAT filing and payment record counts too. This has been in force for over two years, so it is not new for 2026, but plenty of subcontractors still have not adjusted to it.
Second, and this is the genuinely new 2026 change, HMRC has hardened the consequences of fraud. Where gross payment status is cancelled immediately because of fraudulent behaviour, the period before you can re-apply now depends on when that behaviour happened:
- If the behaviour leading to cancellation arose before 6 April 2026, you cannot re-apply for one year.
- If the behaviour arose on or after 6 April 2026, you cannot re-apply for five years.
That five-year lockout is the headline. For a subcontractor who relies on gross payment, being forced under deduction for five years is close to an existential problem. It is deliberately severe, because the target is supply-chain fraud involving CIS and VAT, not ordinary late filing.
So the framing matters. If you are an honest subcontractor who occasionally files a touch late, the 2026 rules are not aimed at you. If anyone in your chain is playing games with VAT, the cost of being caught just went up sharply.
What is the CIS compliance test now that VAT is included?
The compliance test asks whether you have met your tax obligations on time during a qualifying period. Since 6 April 2024 that explicitly includes VAT, so a poor VAT record can now cost you gross payment status in exactly the way a poor PAYE or CIS record always could.
In practice this means HMRC looks at whether you have:
- Filed your CIS monthly returns (CIS300) on time.
- Filed your VAT returns on time.
- Paid your CIS deductions, PAYE and VAT on time.
- Kept your Self Assessment or Corporation Tax filings and payments up to date.
There is sensible proportionality built in. Minor VAT compliance failures are not held against you, and for subcontractors who held gross payment status at 6 April 2024, VAT failures that happened before that date are disregarded. The test is about your behaviour going forward, not a retrospective trap.
The point is that VAT is no longer a separate silo. If you are VAT-registered, your VAT discipline is now part of keeping gross payment status. If you are not sure your VAT and CIS records line up, our VAT and tax advisory service and CIS support are designed to keep both in step.
Can HMRC cancel my gross payment status immediately for fraud?
Yes. HMRC has the power to cancel gross payment status immediately where it has reasonable grounds to suspect that someone has fraudulently made an incorrect return, or fraudulently provided incorrect information, in connection with a CIS, PAYE, Income Tax Self Assessment (ITSA), Corporation Tax Self Assessment (CTSA) or VAT obligation.
Two features make this serious:
- It is immediate. There is no 90-day notice period of the kind that applies to an ordinary annual-review failure.
- It now carries the five-year re-application ban for behaviour on or after 6 April 2026.
The word doing the heavy lifting is "fraudulently". This is not the regime for honest mistakes or genuine cash-flow slips. It is for deliberate dishonesty, the kind that sits behind construction supply-chain fraud. An accidental error on a return, corrected and explained, is a different situation from a fraudulent one.
That distinction is exactly why clean records and prompt corrections matter. If you spot a mistake, fixing it openly is the opposite of fraud. Burying it is what these powers are built to punish.
How much late filing or paying is still allowed?
This is the part that reassures most subcontractors. HMRC's compliance test has published tolerances, so a small slip does not automatically cost you gross payment status. Within the qualifying period, HMRC will generally overlook:
- Up to three CIS monthly returns (CIS300) filed up to 28 days late.
- Up to three VAT returns filed up to 28 days late.
- Up to three late payments of CIS deductions, PAYE or VAT of £100 or more, paid up to 14 days late.
- Any late payment of CIS deductions, PAYE or VAT where the amount is under £100.
So the system is not hair-trigger. It accepts that real businesses occasionally file or pay a few days late. What it does not accept is a pattern of persistent lateness, large unpaid liabilities, or fraud.
The mistake we most often see in practice is treating these tolerances as a budget to spend. They are a safety net, not a target. If you are routinely brushing up against "three returns, 28 days late", you are one bad month away from a failed review.
If you do fail an ordinary annual review (as opposed to an immediate fraud cancellation), HMRC writes to you, you can explain, and if it still decides to withdraw your status it gives you 90 days' notice. You have 30 days from the withdrawal letter to appeal. That is a meaningfully different, gentler process from the immediate fraud power above.
Illustrative example: a subcontractor's compliance year
Illustrative example. Imagine Tomasz runs a groundworks business as a limited company, registered for VAT and CIS, and paid gross by his main contractor. Over the 2026/27 qualifying period his record looks like this:
| Obligation | What happened | Within tolerance? |
|---|---|---|
| CIS300 monthly returns | Two filed 10 days late, rest on time | Yes (up to 3, up to 28 days) |
| VAT returns | All filed on time | Yes |
| VAT payment (March quarter) | £85 paid 9 days late | Yes (under £100) |
| PAYE payment | One payment of £1,200 paid 11 days late | Yes (under 3, over £100, within 14 days) |
| Corporation Tax return | Filed and paid on time | Yes |
Every slip in Tomasz's year sits inside HMRC's published tolerances, so his gross payment status is not at risk on these facts. He has not been fraudulent, his lateness is minor and infrequent, and nothing here triggers the immediate-cancellation power.
Now change one fact. If Tomasz had deliberately understated his VAT to reduce a bill, and that behaviour arose on or after 6 April 2026, HMRC could cancel his gross payment status immediately and he could not re-apply for five years. The difference between the two scenarios is not the size of the number. It is intent.
These figures are illustrative. Your own position depends on your actual filing and payment record and your VAT registration.
How do I protect my gross payment status?
The defence is unglamorous and effective: file on time, pay on time, and keep VAT and CIS joined up. A few practical habits make the difference.
Treat VAT with the same seriousness as CIS, because the test now does. A late or wrong VAT return is no longer a separate problem; it is a gross-payment-status problem.
Reconcile your CIS deductions monthly rather than at year-end. Contractors verify you and deduct based on what HMRC tells them, so a mismatch between what was deducted and what your records show is worth catching early.
Never let the tolerances become a routine. Three late returns is a ceiling, not a plan. Build a filing calendar that aims for on-time every time, so the safety net stays unused.
If you spot an error, correct it openly and promptly. The whole architecture of the 2026 rules separates honest mistakes from fraud. Voluntary correction keeps you firmly on the right side of that line.
Getting CIS, VAT and your year-end accounts to pull in the same direction is exactly what we handle for construction businesses, alongside Corporation Tax and CIS monitoring. If you would rather not lose sleep over a missed deadline, that is the point of having us watch it.
Worried your gross payment status is exposed under the 2026 rules? Book a free call with a Zmartly accountant and we will review your CIS and VAT position before HMRC does.
Frequently asked questions
Will I lose gross payment status just for filing a CIS or VAT return late?
Almost certainly not for an occasional slip. HMRC's compliance test tolerates up to three CIS300 returns and three VAT returns filed up to 28 days late, plus limited late payments. You lose status for persistent lateness, large unpaid liabilities, or fraud, not for the odd late return.
Does VAT now affect my gross payment status?
Yes. Since 6 April 2024, VAT compliance is part of the CIS compliance test. If you are VAT-registered, your VAT filing and payment record can affect whether you keep gross payment status, so it needs the same discipline as your CIS and PAYE obligations.
What is the new five-year ban on re-applying for gross payment status?
Where HMRC cancels gross payment status immediately because of fraudulent behaviour, the re-application period depends on timing. If the behaviour arose before 6 April 2026 you cannot re-apply for one year; if it arose on or after 6 April 2026 you cannot re-apply for five years.
Can HMRC cancel my gross payment status without warning?
For ordinary annual-review failures, no. HMRC writes to you, lets you explain, and gives 90 days' notice before withdrawal, with 30 days to appeal. The immediate cancellation power is reserved for cases where HMRC has reasonable grounds to suspect fraud across CIS, PAYE, ITSA, CTSA or VAT.
What happens to my cash flow if I lose gross payment status?
Contractors would start deducting 20% from your payments at source if you are CIS-registered (30% if not), on the labour element of each invoice. You get the money back via your tax return, but the in-year cash-flow hit can be significant, which is why protecting the status matters.
