What gross payment status is
By default, a registered subcontractor has 20% deducted from the labour element of every payment. With gross payment status (GPS), nothing is deducted. You invoice, you're paid in full, and you settle your own tax through corporation tax or self-assessment at the normal time. For a subcontractor with £1.5m of labour-heavy turnover, that's around £200,000 a year that stays in the business instead of passing through HMRC.
The three tests
| Test | What HMRC checks |
|---|---|
| Turnover | Construction turnover, net of VAT and the cost of materials, of at least £30,000 in the last 12 months for a sole trader; £30,000 per partner or director, or £100,000 for the whole partnership or company, whichever is lower |
| Business | You carry out construction work (or supply labour for it) in the UK, and the business is run through a bank account |
| Compliance | In the 12 months before the application, all tax returns were filed and all tax paid on time: corporation tax, self-assessment, PAYE, CIS returns and payments, VAT. HMRC allows a small number of minor lapses |
The compliance test is the one that fails applications and, later, removes the status. A pattern of PAYE paid a week late, or a CIS return filed on the 25th, counts.
How to apply
Online through your HMRC business tax account, or on form CIS302 for a sole trader or CIS304 for a partnership. A company applies through its CIS registration. You'll need your UTR, company details, and evidence of turnover (accounts or invoices). HMRC usually decides within a few weeks. If refused, you can appeal within 30 days, and the usual reason is a compliance failure you can explain or fix.
What changes when you have it
- Contractors verify you and are told to pay gross. Tell your regular contractors so their systems update.
- No more CIS suffered to reconcile, offset or reclaim.
- Your tax is now paid later, in one or two lumps. The cash that used to be deducted monthly needs setting aside monthly for the corporation tax bill. Open a tax account and transfer a twelfth of the forecast bill each month, or the status will cost you in a different way.
- If you're also a contractor, your obligations to deduct from your own subcontractors are unchanged.
The annual review, and how status is lost
HMRC runs an automatic compliance check every year. If returns or payments have been late beyond the tolerance, you receive a notice that status will be withdrawn in 90 days. You can appeal, and reasonable-excuse arguments sometimes succeed, but the simpler protection is never being late. The failures we see most:
- PAYE or CIS paid after the 22nd, repeatedly.
- A CIS return filed late because the person who does it was on holiday.
- Corporation tax paid late because the bill was a surprise.
- A VAT return filed on time but paid late.
If status is withdrawn, you can't reapply for a year, and in the meantime every contractor deducts 20% again.
Is it worth applying?
If you pass the tests and your tax affairs are tidy, almost always. The cash flow gain is large and immediate. The discipline it demands (every return and payment on time, tax set aside monthly) is the discipline a business of your size should have anyway. If your compliance history is patchy, spend twelve months making it clean and then apply; an early refusal is a year's wait.
Sources
Questions people ask
Does gross payment status mean I pay less tax?
No. You pay the same tax, later and in the normal way. The gain is cash flow: the money stays in your business until your corporation tax or self-assessment is due.
Can a new company get gross payment status?
Only if it can show the turnover in the last 12 months and a clean compliance record for that period. Most new companies wait a year, operating under deduction, before applying.
What if one return was late by a day?
HMRC allows a small number of minor failures within the tolerance. One slightly late return won't usually fail the test; a pattern will.
Do I still need CIS statements with gross status?
Contractors should still give you a statement where they've deducted anything, but with gross status there's no deduction to record. Keep your contractor verification records regardless.
About the author. Chris Neuman is the founder of Taxtful, accountants and advisers to UK construction companies turning over £1m to £15m. Taxtful is construction-only: every client, every template, every conversation. This article is general guidance, not advice on your circumstances; rates and rules change, so check the current position before acting.