CIS Gross Payment Status: How to Qualify

Gross payment status lets a CIS subcontractor be paid in full, with no 20% deduction taken by the contractor. To qualify you must pass three HMRC tests: a clean record of paying tax and National Insurance on time, a genuine UK construction business run through a bank account, and enough turnover, which for a sole trader means at least £30,000 a year before VAT and materials. It is a real boost to cash flow, but it moves the whole tax bill to the end of the year and HMRC can take it away. This guide covers the tests, the application and the trade-offs.

Key takeaways

• With gross payment status, contractors pay your invoices in full with no CIS deduction.
• You must pass a compliance test, a business test and a turnover test.
• The turnover test is £30,000 for a sole trader over the last 12 months, ignoring VAT and the cost of materials.
• You owe the same tax. You pay it through your own return, so you need to save for it.
• HMRC reviews the status every year and can remove it for late returns or payments.

What is gross payment status?

Under the Construction Industry Scheme (CIS), a contractor normally holds back part of each payment to a subcontractor and sends it to HMRC as an advance towards the subcontractor's tax and National Insurance. A registered subcontractor has 20% deducted from the labour part of each invoice. An unregistered one has 30% deducted. Our guide to CIS deduction rates explains how those work.

Gross payment status is the third option. HMRC tells the contractor to make no deduction at all, so the subcontractor receives the full invoice. The subcontractor then pays their tax and National Insurance through their own return: Self Assessment for a sole trader or partner, or the Corporation Tax return for a limited company. The rules are on GOV.UK under how to get gross payment status.

The three tests

You must show HMRC that:

• You have paid your tax and National Insurance on time in the past. This is the compliance test, and it is where most applications fail. HMRC looks at returns as well as payments.
• Your business does construction work, or provides labour for it, in the UK.
• Your business is run through a bank account. A business that operates mainly in cash will not meet this. If you still mix business and personal money, read our guide to a separate business bank account.

The turnover test

HMRC looks at your turnover for the last 12 months, ignoring VAT and the cost of materials. It must be at least:

• Sole trader: £30,000.
• Partnership: £30,000 for each partner, or at least £100,000 for the whole partnership.
• Company: £30,000 for each director, or at least £100,000 for the whole company.
• Company controlled by 5 people or fewer: £30,000 for each of them.

The point about materials catches people out. A subcontractor who invoices £50,000 in a year, of which £25,000 is materials, has only £25,000 of turnover for this test and does not qualify.

Gross payment vs 20% deduction

Is it right for you?

Gross payment status helps most when you have costs to fund before you are paid: wages, your own subcontractors, plant hire or materials. It also removes the wait for a refund if your deductions regularly exceed your tax bill, a common position we cover in CIS expenses and tax refunds.

It is less suitable if you find it hard to put money aside. Under deduction, the tax is collected for you a little at a time. With gross status the full bill arrives in one go, and for sole traders it may come with payments on account towards the following year. A subcontractor who has always had a refund in the spring can find the first January bill a shock.

Step by step: applying for gross payment status

1. Check your compliance record. Look back over your Self Assessment, VAT, PAYE, CIS and Corporation Tax returns and payments. File anything outstanding and pay anything overdue first.
2. Work out your turnover for the last 12 months, taking off VAT and the cost of materials. Use invoices and CIS statements as evidence.
3. Apply. You can do this when registering for CIS, or later through the HMRC online service or by post. There are separate forms for sole traders, partnerships and limited companies. If you are not registered yet, start with our CIS subcontractor registration guide.
4. Give accurate information. GOV.UK warns that you could be fined for providing false information, and so could anyone who helps you make a false registration.
5. Wait for HMRC's decision. Contractors find out your status when they verify you, so do not ask to be paid gross on your own say-so.
6. Open a tax savings pot and move a share of every payment into it from day one.
7. Set reminders for every filing and payment date. Your status now depends on them.

Keeping it: the annual review

HMRC reviews businesses with gross payment status every year. To keep it you must be on time with your tax returns and payments. For a limited company, HMRC reviews the company itself, not the individual directors or shareholders. GOV.UK says you are allowed a small amount of late payments or returns, and that if HMRC gives you more time to pay, this will not affect your status. So if you cannot pay a bill on time, contact HMRC before the deadline.

If you are about to fail a review, HMRC writes to explain why and you can reply with your reasons. If the status is withdrawn there is a right of appeal, and if it is cancelled you need to wait a year before reapplying. The process is set out under annual review in HMRC's guide to what you must do as a CIS subcontractor.

Worked example (illustrative)

"Marek", an illustrative example, is a self-employed groundworker registered for CIS and paid under deduction at 20%. Over the last 12 months he invoiced £58,000 before VAT, of which £21,000 was materials. His turnover for the test is therefore £37,000, which is above the £30,000 needed for a sole trader.

During that year contractors deducted 20% of his £37,000 labour, a total of £7,400, and paid it to HMRC. He regularly had to borrow to cover hired plant while waiting to be paid.

His returns and payments have all been on time and his income goes through a business account, so he applies online. Once HMRC grants gross payment status, a similar year would see him receive that £7,400 in his payments. His tax and National Insurance for the year are unchanged, but nothing has been paid towards them in advance, so he sets up a standing order moving a fixed share of each payment into a savings account for his Self Assessment bill.

Marek and his figures are invented for illustration and are not a real client.

Common mistakes

• Counting materials or VAT as turnover. Both are ignored for the test.
• Applying with late returns outstanding. Clear the backlog first.
• Not saving for the bill. The money in your account is not all yours.
• Ignoring HMRC's warning letter. If you do not reply, the status will be withdrawn.
• Telling contractors you are gross before HMRC confirms it. They must go by verification with HMRC.

How we can help

We check your compliance record and turnover before you apply, submit the application, and then keep your returns and payments on time so the status survives each annual review. Our CIS service starts from £40 per month on a fixed fee. See our pricing, or contact us to find out whether you would qualify.