CIS Gross Payment Status: How to Qualify, How to Keep It, and What Happens When HMRC Takes It Away

There are subcontractors in the UK construction industry who receive every penny of every invoice. No deduction. No 20% withheld. No waiting for the tax return to reconcile what HMRC is holding on their behalf.

They have gross payment status. And the difference between having it and not having it — on a business turning £200,000 a year in construction labour — is £40,000 per year sitting in their bank account instead of sitting with HMRC waiting to be claimed back.

That is not a small number. That is cash flow. That is the difference between taking on a new job and having to wait thirty-one days for HMRC to process a repayment first.

Gross payment status is HMRC's approval for a CIS subcontractor to receive full contract payments without deduction. It is earned, not given. It is reviewed, not permanent. And it is removed without ceremony if the compliance record that justified it starts to slip.

What the Status Actually Does

Without gross payment status, every payment a subcontractor receives from a contractor has been processed through the CIS deduction machine first. The contractor verifies the subcontractor, confirms they're registered, deducts 20%, pays the net amount over, and passes the 20% to HMRC with the monthly return.

The subcontractor eventually gets the 20% back — through their Self Assessment or Corporation Tax return, offset against the tax they owe. But eventually is not immediately. Eventually might be six, nine, twelve months away. In a trade where materials need buying and wages need paying, that gap costs money.

Gross payment status closes the gap entirely. The subcontractor invoices £10,000. They receive £10,000. They manage their own tax affairs directly — quarterly payments on account, annual return, the usual obligations — but without the forced 20% advance collection every single month.

Who Can Qualify

Three tests. All three must be passed.

The business test. The applicant must be carrying on a business in the UK construction industry, with a bank account in the business name, operating genuinely — not a shell, not a recently incorporated vehicle with no trading history.

The turnover test. Net construction turnover — excluding VAT and materials costs — must exceed the threshold in the twelve months before application. For sole traders: £30,000. For partnerships: £100,000 total, or £30,000 per partner if higher. For companies: £30,000 per director, with a minimum of £30,000.

These are not gross invoice figures. They are net construction turnover — the labour element of work done. A subcontractor with total invoicing of £150,000 but £100,000 of that in materials passes a different test than one with £150,000 of pure labour.

The compliance test. This is the one that kills most applications.

HMRC reviews the past twelve months of compliance across every obligation the business has: Self Assessment (or Corporation Tax), VAT if registered, PAYE if operating a payroll, and CIS itself. Every return filed on time. Every payment made on time.

Not approximately on time. Not mostly on time. On time. HMRC's compliance test has no partial credit. A single late Self Assessment payment in the previous twelve months can fail the application.

How the Review Works

HMRC reviews gross payment status annually. The review is triggered by HMRC's systems, not by the subcontractor. There is no reminder. There is no warning that the review is happening.

The review applies the same compliance test as the initial application — twelve months of clean compliance history. If the subcontractor passes: status renewed, nothing changes, the contractor continues paying gross.

If the subcontractor fails: HMRC issues a cancellation notice. From the date on that notice, the subcontractor no longer holds gross payment status. Any contractor who has been paying them gross must begin deducting from the next payment. The subcontractor is entitled to appeal — but the appeal process is slow, and in the meantime, the deductions run.

The most common reasons for cancellation: a late tax payment during a quiet period, a Self Assessment return submitted after the January deadline, a VAT return missed during a busy site season. None of them feel significant at the time. All of them are caught by the annual review.

What Contractors Must Do When Status Is Cancelled

A contractor who receives notification — through HMRC's verification system — that a subcontractor's gross payment status has been cancelled must begin deducting immediately. Not from the next contract. From the next payment under the current contract.

If the contractor continues paying gross after receiving the cancellation notification, the contractor becomes liable for the deductions that should have been made. HMRC does not accept "we didn't know" as a defence when the verification system is the mechanism by which you know.

This is why verification is not a one-time event. A subcontractor verified as gross in January may not be gross in September. The verification check before every payment cycle — or at minimum before the first payment of each new tax year — is not excessive due diligence. It is the correct procedure.

Reinstating After Cancellation

Once cancelled, gross payment status cannot be reinstated automatically. The subcontractor must make a new application, pass the compliance test again from the point of the new application going back twelve months, and wait for HMRC to process it.

For a subcontractor whose status was cancelled due to a late payment in one of the worse quarters of the year, the reinstatement timeline is typically several months of continued deductions while the compliance record rebuilds. The cash flow impact during that period — reverting to 20% deductions after trading gross — is significant and often comes as a shock.

The prevention is worth far more than the cure. A calendar alert for every tax payment due date. A tickler for Self Assessment deadlines. A quarterly check that CIS returns are filed and VAT is paid. The compliance infrastructure that keeps gross payment status intact costs almost nothing to maintain.

bookd. manages CIS compliance for contractors — verification before every payment, correct deduction rates, monthly returns filed by the 19th. If you work with subcontractors who hold gross payment status, the verification check that confirms they still hold it is part of what we do every month.