Getting gross payment status,
and keeping it.
Three tests, and the one that catches firms out is the compliance test, which now looks at VAT as well. What qualifying takes, and what a single late return costs you.
Published ·4 min read·Written by Unibuild
Gross payment status lets a subcontractor be paid in full with no CIS deduction at source. Qualifying means passing three tests: a business test, a turnover test, and a compliance test covering the previous twelve months of filing and payment. The compliance test is the one that catches firms, and it now includes VAT.
What it is actually worth
For a labour-heavy subcontractor it is the single largest cash flow improvement available, and the arithmetic is worth doing rather than assuming.
Without it, twenty per cent of the labour element of every payment is taken at source and comes back slowly, through the Employer Payment Summary each month if somebody files it, or after the tax year if nobody does. With it, that money arrives with the payment. Nothing about the eventual tax bill changes; what changes is who holds the cash in the meantime, which for a firm funding wages weekly against sixty day terms is most of the problem.
Run it on your own numbers: last year total labour invoiced, times twenty per cent. That is the sum that was sitting elsewhere.
The three tests
- The business test. The business genuinely carries out construction work, or supplies labour for it, in the United Kingdom, and it operates through a bank account. Straightforward for a real contractor.
- The turnover test. A minimum of net construction turnover, excluding VAT and the cost of materials, in the twelve months before the application. The threshold is applied per individual or partner, and for a company by reference to relevant persons such as directors, with an alternative aggregate test for larger companies. Which limb applies to you depends on your structure, so check it against your own rather than a headline figure.
- The compliance test. All tax returns filed and all tax paid on time in the preceding twelve months. This is where applications fail.
The test that catches firms
The compliance test looks across your obligations, not just your CIS ones: Self Assessment or Corporation Tax, PAYE, CIS returns, and, since April 2024, VAT.
That addition matters and it is not widely understood. A firm with an immaculate CIS record and a habit of paying VAT a fortnight late now has a problem it did not have before.
Two practical consequences. If you are planning to apply, treat the twelve months before the application as a compliance window and get everything landing early rather than on the day. And if you already hold the status, understand that a single late payment is not a small administrative matter, because of what happens next.
It takes twelve months of clean compliance to earn and one late payment to put at risk. The asymmetry is the whole management problem.
Applying
Application is made to HMRC, and where a company holds it, the status attaches to the company rather than to individuals. The process itself is not onerous; the qualifying period before it is.
Worth knowing that HMRC can look at the compliance of associated people and companies, so a director with an untidy personal Self Assessment can affect a company application. That surprises people and is worth checking before applying rather than after being refused.
Losing it
Gross payment status is reviewed on an ongoing basis rather than granted permanently. HMRC carries out periodic reviews and can withdraw it where compliance has slipped.
Withdrawal is immediate in effect and expensive in cash: you go from receiving one hundred per cent of your labour to eighty overnight, on a business whose working capital has adjusted to the former. Firms that lose it usually describe the cash impact as worse than the original absence, because the absence was planned for and the withdrawal was not.
There is a right of appeal, and the practical defence is boring: a compliance calendar with an owner, and payments made a few days early rather than on the deadline.
Where to start, on Monday
If you do not hold it, work out what twenty per cent of last year labour was, then look at your last twelve months of filing and payment dates across VAT, PAYE, CIS and Corporation Tax. Those two numbers tell you what it is worth and whether you could apply today.
If you do hold it, the useful exercise is different: find out who in the business owns each filing deadline, and whether anybody would notice a payment going late. Most firms that lose the status lose it to an absence rather than a decision.
The follow-up questions.
What the deductions do to your cash while you do not have it is in the construction cash gap.
How do I get CIS gross payment status?+
Does the CIS compliance test include VAT?+
What is gross payment status worth in cash terms?+
Can I lose gross payment status?+
Can a director\u2019s personal tax record affect a company application?+
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