Every subcontractor paid under the Construction Industry Scheme knows the pattern: 20% comes off every invoice before you see it, and if that is more tax than you actually owe, you claim the difference back the following year. Gross payment status breaks that cycle entirely — contractors pay you in full, and you settle your own tax directly. It is not automatic, and HMRC can take it away as easily as it grants it, but for the subcontractors who qualify, it is one of the simplest cashflow improvements available.
What gross payment status actually changes
Under CIS, a contractor paying a subcontractor for construction work must normally deduct tax before paying them: 20% if the subcontractor is registered with CIS, or 30% if they are not registered at all. That deduction is paid across to HMRC and treated as an advance payment against the subcontractor's eventual Income Tax or Corporation Tax and National Insurance liability, reconciled through Self Assessment or a Corporation Tax return — which is exactly why so many subcontractors end up owed a refund, since the flat deduction rate rarely matches the tax actually due once expenses and allowances are taken into account.
With gross payment status, the contractor makes no deduction at all. You are paid the full invoice value, and you become responsible for paying your own Income Tax, Corporation Tax and National Insurance through the normal Self Assessment or Corporation Tax cycle, exactly as any other unincorporated business or company would. The tax due does not change — only when and how it is collected does. For a subcontractor with healthy margins and reliable admin, that is a meaningful cashflow advantage: money that would otherwise sit with HMRC for months, awaiting a refund claim, stays in the business from the day it is earned.
The three tests HMRC applies
Gross payment status is not granted automatically on registration — you have to apply for it, and HMRC checks three separate tests before agreeing.
1. The business test
HMRC needs to see that you are running a genuine construction business in the UK, with a business bank account, and that the work you do falls within the scope of CIS. This is rarely the sticking point for an established subcontractor already trading and filing returns.
2. The turnover test
This is where most applications fail. You need net construction turnover — income from construction work, excluding VAT and the cost of materials — of at least a set threshold in the 12 months before applying. For a sole trader, the threshold is £30,000. For a partnership, it is £30,000 for each partner, or £100,000 for the partnership as a whole if that figure is lower. For a company, it is £30,000 for each director (or each shareholder, for a close company), or £100,000 for the company as a whole if that is lower. A subcontractor who has only recently gone self-employed, or a small limited company with two or three working directors, can genuinely struggle to clear this bar in year one even where every other test would be met comfortably.
3. The compliance test
You need a clean recent compliance record: CIS returns, Self Assessment or Corporation Tax returns, VAT returns and PAYE submissions filed on time, and the tax due on each paid on time, for roughly the 12 months before you apply. HMRC does allow a limited number of minor slips within that window — a small number of late payments or filings under a set number of days, up to a set number of occasions — but persistent lateness, or one significant default, is usually enough to fail the test outright.
How to apply
Gross payment status is applied for as part of CIS registration, or afterwards if you registered for standard (net) payment status initially and now meet the tests. Sole traders and individual subcontractors apply online or by phone through their CIS registration; partnerships and companies register the business itself for gross status separately from registering individual partners or directors as subcontractors. Applications are usually decided quickly, but HMRC will refuse an application outright where the turnover or compliance test is not met — there is limited value in applying speculatively before the numbers genuinely support it.
Keeping it, not just getting it
HMRC does not grant gross payment status once and leave it alone. Your compliance record is reviewed automatically, generally once a year, and status can be withdrawn if you fall outside the limits on late filings or late payments during the review period, or if your turnover or business circumstances change such that you no longer meet the underlying tests. Losing status mid-year is worse than never having it: contractors revert to deducting 20% or 30% immediately, at exactly the point your cashflow planning has already assumed gross payments would keep coming.
The practical discipline that gross status demands is the same discipline that makes it worth having: filing CIS returns, VAT returns and your own Self Assessment or Corporation Tax return on time, every time, and setting aside enough from each payment to cover the tax bill that a contractor is no longer collecting on HMRC's behalf. Subcontractors who treat the CIS deduction as a form of forced saving, and would struggle to put money aside themselves, are often better off staying on net payment status and using the CIS deduction as the discipline it effectively provides.
How it compares with claiming a CIS refund every year
If you are already reading our guide to claiming a CIS refund, the comparison is straightforward: a refund claim recovers tax that was over-deducted during the year, but you wait — often many months — between the deduction and the repayment landing in your account. Gross payment status removes the over-deduction in the first place, so there is nothing to claim back and no waiting period. It suits subcontractors whose actual tax liability is consistently and predictably lower than the flat CIS deduction rate, and who have the turnover and clean compliance history to qualify. It is less suited to subcontractors who value the CIS deduction as an automatic tax-saving mechanism, or whose turnover sits close to the qualifying threshold and could dip below it at the next review.
The interaction with VAT is also worth checking before applying, particularly for subcontractors caught by the domestic reverse charge for construction, since reverse charge invoices already remove VAT from the cash a subcontractor receives on qualifying supplies — gross payment status addresses the separate CIS deduction, and the two changes together can materially alter month-to-month cashflow in ways worth modelling before either is assumed.
Common questions
What's the difference between gross payment status and standard CIS deduction rates?
Under the Construction Industry Scheme, contractors normally deduct tax from a subcontractor's payments before passing the rest on: 20% for subcontractors registered with CIS, or 30% for those who are not. With gross payment status, the contractor pays the subcontractor in full, with no deduction at source, and the subcontractor accounts for their Income Tax or Corporation Tax, and National Insurance, through their normal Self Assessment or Corporation Tax return instead.
What turnover do I need to qualify for gross payment status?
You need to pass a turnover test based on net construction turnover from the last 12 months, excluding VAT and the cost of materials. For a sole trader the threshold is £30,000; for a partnership it is £30,000 per partner, or £100,000 for the partnership as a whole if that is lower; for a company it is £30,000 per director (or per shareholder for a close company), or £100,000 for the company as a whole if that is lower. Turnover from your own labour and that of any employees or subcontractors you engage can generally be counted towards the test.
Can HMRC take away my gross payment status once I have it?
Yes. HMRC reviews compliance annually, and gross payment status can be cancelled if you miss CIS, PAYE, VAT or Self Assessment/Corporation Tax filing or payment deadlines beyond the limits HMRC allows, or if you stop meeting the business or turnover tests. If status is withdrawn, the contractor starts deducting tax again immediately, which can be a significant, unplanned cashflow shock if you have been budgeting on receiving payments gross.
Should I apply for gross status if I'm currently claiming CIS refunds every year?
If you are consistently receiving a CIS refund because your allowable expenses and reliefs mean less tax is actually due than has been deducted at 20% or 30%, gross payment status is usually worth applying for, provided you can meet the turnover and compliance tests and are disciplined about setting aside money for your eventual tax bill. It replaces a slow annual refund cycle with full payment upfront, but only suits subcontractors confident they will keep their own tax affairs current without the CIS deduction acting as a forced saving.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and construction subcontractors across Merseyside, Greater Manchester, Lancashire and Cheshire on CIS compliance, refunds and the structuring decisions that affect cashflow.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.