Managing cashflow can be challening if you’re a subcontractor in the construction industry, with 20% (or even 30% if you’re not registered for CIS) deducted from your gross pay each month. For eligible subcontractors, applying for Gross Payment Status can be a way to receive payments without these deductions being made first.
It’s important to understand, this isn’t a tax break. You’ll still owe the same amount of income tax, but with Gross Payment Status these deductions won’t be taken by contractors when they pay you. Instead, you’ll be paid in full (which can be useful for cash flow), leaving you to pay what you owe once you send your tax return.
In this article we’ll explain what this could mean for you, and how to apply for Gross Payment Status if you’re a subcontractor working in the construction industry.
What is Gross Payment Status ?
Gross Payment Status is an HMRC designation under the Construction Industry Scheme (CIS) that lets contractors pay you the full invoice amount straight up, without making any deductions for CIS.
How do CIS deductions work without Gross Payment Status?
Contractors are normally required to deduct tax from payments they make to subcontractors carrying out construction work in the UK. These deductions are either made at:
- 20% if you’re registered to the Construction Industry Scheme
- 30% if you’re not registered
The contractor submits a CIS return and passes these deductions along to HMRC as an advance payment towards your expected tax bill. The problem is that the deductions don’t factor in your £12,570 tax-free Personal Allowance, so it’s very common for subcontractors to overpay during the year, and need a rebate once they submit their tax return (which is why deductions can cause cash flow issues).
Signing up for gross status cancels out the cash flow aspect, but the flip side of this is that you’ll need to make sure you put aside enough to pay your tax bill when the time comes!
Do I qualify for Gross Payment Status?
CIS was introduced to minimise the risk of tax evasion, so you’ll need to satisfy three HMRC tests to qualify for Gross Payment Status:
- The business test: Your business must operate in the UK, carry out construction work (or supply labour for it), and manage payments through a UK bank account
- The turnover test: Your construction turnover in the past 12 months must hit a minimum threshold
- The compliance test: Your tax filing and payment record needs to be clean for the past 12 months – no missed deadlines or fines!
Pass all three and HMRC will consider you for gross status, but fail any at all – even one – and your application will be refused.
What’s the turnover test threshold for gross status?
For sole traders, the net construction turnover threshold is £30,000 in the last 12 months. Partnerships can qualify with £30,000 per partner, or at least £100,000 across the partnership as a whole.
Limited companies follow the same pattern: £30,000 per director, or £100,000 for the company overall unless the company is controlled by five or fewer directors/shareholders (in which case you must use the £30,000 per director rule).
What to include in your turnover calculation for Gross Payment Status
Only the labour element of your invoices counts, so any materials and VAT included on your invoices can be excluded from your calculation for this purpose.
What counts as a clean compliance record?
HMRC will look back at your tax records and compliance behaviour from the last 12 months as part of the application review process. It means any missed deadlines or penalties will get flagged although there is some leeway. The guidance suggests you might be allowed:
- Late CIS or VAT returns (no more than 28 days overdue)
- Late payments over £100 (no more than 14 days late)
- And payments under £100 aren’t counted at all
It’s a narrow margin though: treat “on time, every time” as the real target, not the fallback.
How do I apply?
You can apply online through your Government Gateway account, or by post using the relevant CIS form for your business structure (sole trader, partnership, or limited company). HMRC will cross-check your figures against your accounts, so make sure your turnover claim matches your actual records before you submit.
Can I lose gross status once I have it?
Yes. HMRC reviews gross status annually through an automated compliance check, and can also review your position on an ad-hoc basis if issues come up in between.
If your record slips during the review period, HMRC can withdraw your status – sometimes with immediate effect where fraud is suspected, bypassing the usual notice period. Outside of fraud cases, you’ll typically get a warning and have time to put things right before status is removed.
The most common causes of withdrawal are late VAT returns, missed PAYE payments, and late Self Assessment or Corporation Tax filings – all avoidable with a good accountant and bookkeeping software!
Can I reapply after losing gross status?
Yes, although you’ll typically need to wait and rebuild a clean 12-month compliance record before reapplying. There’s no fixed statutory waiting period, but in practice, going in with anything less than a full clean year behind you rarely ends well.
Is gross status worth applying for?
If cash flow is tight and you’re regularly waiting months for CIS refunds, then yes – it’s one of the few genuinely free ways to improve your working capital as a subcontractor. Just be honest with yourself about your compliance record first. A rejected application isn’t just wasted time; it can flag your business for closer scrutiny down the line.
If you don’t qualify for gross status, you could register for CIS anyway, so deductions are made at 20% instead of 30%.
Learn more about the Construction Industry Scheme (CIS) with our guides and templates for contractors, or talk to us about our online accounting services. Call 020 3355 4047 to chat to the team, and get an instant online quote.
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