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If your limited company works as a subcontractor in the UK construction industry, a share of almost every payment you receive is deducted at source under the Construction Industry Scheme before the money ever reaches your bank account. For a growing construction business, those deductions tie up working capital all year round, often while wages, materials and plant still need paying in full.
Gross payment status changes that. It allows a subcontractor to be paid in full, with no deductions taken from their invoices, and to settle their tax through the normal company tax process instead. For many subcontractor limited companies it is the single biggest cash flow improvement available, yet plenty of eligible businesses have never applied, and others hold the status without realising how easily it can be lost.
At Pulse Accountants, we work with construction companies every day and see both sides: businesses missing out on gross status they would qualify for, and businesses put at risk by compliance slips they did not know mattered. In this guide, we explain what CIS gross payment status is, who qualifies, how to apply and how to keep it once you have it.
Gross payment status is a registration level within the Construction Industry Scheme that allows a subcontractor to receive payments from contractors in full, with no deductions taken at source. Instead of the contractor withholding a share of each payment and passing it to HMRC, the subcontractor receives the whole amount and pays their own tax through their normal returns.
Under the scheme, registered subcontractors without gross status have deductions taken from the labour element of their payments at the standard rate, and unregistered subcontractors suffer deductions at a higher rate. Gross payment status removes deductions altogether.
It is important to understand that gross status changes when you pay tax, not whether you pay it. The payments you receive are declared as company turnover in the usual way and the tax due is paid through corporation tax. The total liability is the same. What changes is that your business holds onto its own money in the meantime, rather than HMRC holding it for you.
The main benefit is cash flow. Deductions at source take a slice out of every payment a subcontractor receives, all year round. For a labour heavy subcontractor limited company, that is a permanent drag on working capital, and it often means waiting to offset or reclaim deductions long after the work was done. With gross status, the full value of every invoice arrives in the bank, and the business controls the timing of its own tax payments.
There is also a commercial benefit that gets talked about less. Holding gross payment status signals to contractors that HMRC has reviewed your business and found its tax affairs in good order. For main contractors deciding which subcontractors to bring onto a project, that is a mark of credibility. It also simplifies life for the contractor, who no longer needs to calculate, deduct and account for tax on your payments.
Finally, gross status removes a whole layer of administration. Subcontractors without it need to track deduction statements, reconcile deductions against their records and offset or reclaim them correctly. Gross status takes that entire process off the table.
To be granted gross payment status, a subcontractor must apply to HMRC and pass three tests.
The business test. Your business must carry out construction work in the UK, or provide labour for construction work, and must be run through a business bank account. HMRC will check that you genuinely operate in the construction sector.
The turnover test. Your business must show a sufficient level of net construction turnover in the year leading up to the application. Net construction turnover means income from construction work excluding VAT and excluding the cost of materials. The required level depends on your business structure, with a threshold applied for each director or relevant person in a company, and an alternative whole business test available for larger companies. Only construction income counts, so businesses with mixed income streams need to look carefully at the construction element on its own.
The compliance test. Your tax affairs must be in good order over the period leading up to the application. HMRC checks that returns have been filed on time and tax has been paid on time across the board, including corporation tax, PAYE, CIS and VAT. A limited allowance exists for minor slips, but a poor compliance record is the most common reason applications fail.
A company wholly owned by a parent that already holds gross payment status may not need to pass the turnover test, which is worth knowing for group structures.
Applications are made to HMRC, either when first registering for the Construction Industry Scheme or at any point afterwards once the business meets the tests. Limited companies apply using the company registration route and will need to provide evidence supporting the turnover test, showing how the net construction turnover figures were calculated.
Before applying, it is worth reviewing your position honestly, because rejected applications waste time and a failed application generally means waiting for a period of clean compliance before trying again. The review should cover whether your construction turnover genuinely meets the test once materials and VAT are stripped out, whether every return and payment across all taxes has been made on time, and whether any directors have involvement in other companies, which can slow HMRC's checks.
This is exactly the preparation an accountant should be doing with you. Getting the turnover calculation right and clearing up any compliance loose ends before the application goes in makes the difference between a smooth approval and a rejection that locks you out for a further period.
Gross payment status is not a one off award. HMRC reviews gross status holders on a rolling basis, using automated checks of compliance performance over the previous year. If the review finds a pattern of late returns or late payments, the status can be withdrawn.
The compliance bar covers your whole tax footprint, not just CIS. Corporation tax, PAYE and VAT all count, and VAT compliance now forms part of the test, so a business that files its CIS returns perfectly but lets VAT slip is still at risk. HMRC also has the power to cancel gross status immediately where it has reasonable grounds to suspect fraud involving VAT, income tax, corporation tax or PAYE.
In practice, keeping gross status comes down to unglamorous discipline: every return filed on time, every payment made on time, every month, across every tax. For businesses juggling site work, that discipline is much easier to maintain when bookkeeping is up to date and deadlines are managed by an accountant rather than remembered on the move.
If HMRC decides your business no longer qualifies, it must follow a set process. You will be issued with a formal notice explaining that you are failing the rules, and you have a right of appeal within a set window. If the withdrawal stands, your business reverts to having deductions taken at source, and you will generally need a sustained period of clean compliance before you can reapply.
There is a reputational dimension too. When gross status is withdrawn, HMRC writes to contractors who have paid you in recent years to tell them your status has changed. Even where a business recovers quickly, that letter lands on the desks of your customers, and in a sector built on relationships and reliability it is not a message you want contractors to receive. Protecting gross status is about protecting your standing in the supply chain, not just your cash flow.
Gross payment status and the VAT domestic reverse charge affect two different parts of subcontractor cash flow, and it helps to see them together.
Deductions under the Construction Industry Scheme take money out of your payments at source, which gross status solves. The reverse charge means you no longer receive VAT on most supplies to contractors, which gross status does not solve, because the two regimes are separate. A subcontractor with gross status still applies the reverse charge on qualifying supplies, still issues reverse charge invoices and may still benefit from monthly VAT returns if their returns have become repayment claims.
The healthiest position for a subcontractor limited company is to have both sides managed deliberately: gross status protecting the CIS side, and the right VAT setup protecting the VAT side. If the reverse charge is new to you, our guide to the VAT domestic reverse charge in construction explains how it works. [Internal link: What Is the VAT Domestic Reverse Charge in Construction?]
Across the construction companies we work with, the same issues come up repeatedly:
That last group of mistakes deserves emphasis. Gross status hands your business its cash back, but the tax still has to be paid. Businesses that spend gross receipts without setting aside the tax element trade a cash flow problem for a tax bill problem. Good forecasting and a disciplined approach to tax provisions are part of holding gross status well.
At Pulse Accountants, we support construction limited companies with every part of their financial operations, from Construction Industry Scheme compliance and VAT to job costing, cash flow forecasting and management reporting. Gross payment status sits right at the centre of that picture, because it touches your cash flow, your compliance record and your relationships with contractors.
We help construction businesses by:
If you think your business could qualify for gross payment status, or you hold it and want certainty it is protected, speak to Pulse Accountants today and find out how our construction accounting specialists can support your business.
Gross payment status is a registration level within the Construction Industry Scheme that allows a subcontractor to be paid in full by contractors, with no deductions taken at source. The subcontractor declares the income through their normal returns and pays their own tax, rather than having it withheld from each payment.
Yes. Gross payment status changes when you pay tax, not whether you pay it. Payments are received in full and declared as turnover, and the tax due is paid through corporation tax for a limited company. The total liability is the same, but the business keeps control of its cash in the meantime.
You must pass three HMRC tests. The business test requires that you carry out construction work in the UK through a business bank account. The turnover test requires a sufficient level of net construction turnover, meaning construction income excluding VAT and materials. The compliance test requires your returns and tax payments to have been made on time across all taxes in the period before the application.
Yes. Limited company subcontractors can apply provided they meet the business, turnover and compliance tests. The turnover test for a company is based on each director or relevant person, with an alternative whole company test available, and evidence supporting the turnover figures must be provided with the application.
Yes. HMRC reviews gross status holders on a rolling basis and can withdraw the status where returns or payments have been late, with the compliance check covering corporation tax, PAYE, CIS and VAT. HMRC can also cancel the status immediately where it suspects fraud. A formal notice is issued and there is a right of appeal.
Your business reverts to having deductions taken at source, and HMRC writes to contractors who have paid you in recent years to tell them your status has changed. You will generally need a sustained period of clean compliance before you can reapply, so prevention is far better than cure.
No. The two regimes are separate. A subcontractor with gross payment status still applies the VAT domestic reverse charge to qualifying supplies made to contractors, still issues reverse charge invoices and still needs the right VAT setup for their circumstances.
For most established subcontractor limited companies, yes. It improves cash flow by removing deductions at source, reduces administration and signals to contractors that HMRC considers your tax affairs to be in good order. The trade off is responsibility: your business must maintain a spotless compliance record and set money aside for the tax that falls due later.
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