CIS gross payment status: how to get it, and how firms lose it

Because 20% of your labour income stops being withheld for up to a year. A subcontractor turning over £300,000 of labour has roughly £60,000 a year deducted at source and repaid after the tax year ends. That is working capital you are lending to HMRC interest-free, and for a growing firm it is often the difference between taking the next contract and turning it down.

It also changes how you look to main contractors. Gross status is a reasonable proxy for a subcontractor who files and pays on time, and some tenders treat it as a soft qualification.

Gross payment status does not reduce your tax. It changes when you pay it.

The simplest of the three. You must show that your business carries out construction work, or supplies labour for construction work, in the UK, and that it is run largely through a bank account. HMRC will ask for the account details and for evidence the business is real — invoices, contracts, a VAT number where you have one.

NoteA personal current account used for everything is a common reason for a first application to fail. Open a business account before you apply, not after.

HMRC looks at your construction turnover in the twelve months before the application, excluding VAT and excluding the cost of materials. It is a labour turnover test, so a firm with high materials pass-through can fail it on a large-looking revenue figure.

The alternative £100,000 figure is there so that a four-director company does not need £120,000 to qualify. Whichever test you pass is fine. A company controlled by five or fewer people has to count relevant percentages for each of them, which is worth checking with an accountant before applying.

The compliance test asks whether, in the twelve months before the application, you have filed every return and paid every liability on time. HMRC looks at self assessment or corporation tax, PAYE, CIS returns as a contractor — and, from 6 April 2024, VAT.

Since 6 April 2024, VAT compliance forms part of the CIS gross payment status test.

The VAT tolerance is narrow. Broadly, one VAT return or payment more than 28 days late, or three separate instances of being even a day late in a twelve-month period, is enough to fail. If you are not VAT registered, the VAT limb simply does not apply to you.

HMRC does allow some tolerated failures elsewhere — for example a small number of late monthly CIS returns filed within 28 days, or a self assessment return up to 28 days late — but they are limited in both number and lateness, and they are not a plan. The same 2024 changes also gave HMRC power to remove gross payment status immediately where it suspects VAT, corporation tax, income tax or PAYE fraud, without the usual notice.

HMRC reviews gross status at least annually through an automated compliance check called the tax treatment qualification test. It runs against the same criteria as the application, so the thing that would have stopped you getting it will also take it away.

If you fail, HMRC writes to you and the status is withdrawn — normally with 90 days’ notice, during which you can appeal. Once withdrawn, contractors will deduct 20% from your labour when they next verify you, and you cannot reapply for twelve months.

NoteContractors do not get told automatically the moment your status changes. They find out when they next verify you, which is why re-verification and the 30% unverified rate matter to both sides.

If you are on the contractor side, treat a subcontractor’s claimed gross status as a claim until verification confirms it. Paying gross on the strength of an email is a liability you take on yourself.

1. 01File every VAT return on time, even when you cannot pay in full. Filing and agreeing a time-to-pay arrangement is treated far better than not filing.
2. 02File nil CIS returns. A missed nil return is a compliance failure as well as a £100 penalty.
3. 03Pay PAYE and CIS by the 22nd in cleared funds if you pay electronically, allowing for weekends and bank holidays.
4. 04Keep the business bank account genuinely separate from personal money.
5. 05Diarise the deadlines rather than relying on someone remembering. Almost every withdrawal traces back to one missed date, not to a real dispute with HMRC.

Estimark tracks each subcontractor’s verified tax treatment and verification number against their record, and applies 0%, 20% or 30% from that rather than from what is typed on an invoice. It does not monitor your own compliance position with HMRC or predict whether you will keep gross status — that is between you, your accountant and HMRC.