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’s working capital you’re lending to HMRC interest-free. For a growing firm it decides whether the next contract gets taken on or turned 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 doesn’t reduce your tax. It changes when you pay it.

The simplest of the three. You have to show that your business carries out construction work, or supplies labour for construction work, in the UK, and that it’s 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’s a labour turnover test. A firm with heavy materials pass-through can fail it on a revenue figure that looks more than large enough.

The alternative £100,000 figure is there so a four-director company doesn’t 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, so check that with an accountant before you apply.

The compliance test asks whether, in the twelve months before the application, you’ve 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 aren’t VAT registered, that limb doesn’t apply to you at all.

HMRC does allow some tolerated failures elsewhere. A small number of late monthly CIS returns filed within 28 days, say, or a self assessment return up to 28 days late. They’re limited in both number and lateness, and they aren’t 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. Whatever 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, and you can appeal inside that window. Once it’s gone, contractors deduct 20% from your labour when they next verify you, and you can’t reapply for twelve months.

NoteContractors don’t get told automatically the moment your status changes. They find out when they next verify you, so re-verification and the 30% unverified rate matter to both sides.

If you’re 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 can’t 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 properly 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 whatever is typed on an invoice. It doesn’t monitor your own compliance position with HMRC, and it won’t predict whether you keep gross status. That’s between you, your accountant and HMRC.