Getting gross payment status,
and keeping it.

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 of £30,000 for each partner or director or £100,000 for the whole firm, 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.

What are the three tests for gross payment status?

1. 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.
2. The turnover test. Net construction turnover in the twelve months before the application, ignoring VAT and the cost of materials. A sole trader needs £30,000. A partnership or company needs £30,000 for each partner or relevant person, relevant persons being the directors and, in a close company, the beneficial shareholders. There is an alternative test for both, set at £100,000 for the firm however many people it has. A four-director company passes on £120,000 under the standard test or £100,000 under the alternative, and applies on whichever limb it meets.
3. The compliance test. Returns filed and tax paid on time across the preceding twelve months, within tolerances narrower than most firms assume. 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.

The test is not as absolute as it sounds, and knowing where the line actually falls is worth more than assuming there is none. HMRC works to set tolerances. Remittances under £100 are disregarded. A PAYE, VAT or CIS payment of £100 or more can be up to fourteen days late without failing the test, and you are allowed three of those in the twelve months. A fourth fails it. Any payment more than fourteen days late fails it on its own.

Returns work the same way. Up to three monthly CIS returns or VAT returns may be filed late, provided each is under twenty-eight days late. A fourth fails the test, and so does any single return more than twenty-eight days late. Anything still outstanding on the date you apply fails it outright, whatever the record before that.

For VAT specifically, minor failures are disregarded, and for a firm that already holds the status only VAT behaviour from 6 April 2024 onwards is considered. That is a narrow reprieve rather than a general one.

There is a tolerance and it is three. The fourth late payment is the one that costs you the status.

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, count the slips instead of dismissing them, because the fourth is not a warning.

How do you apply for gross payment status?

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.

How do you lose gross payment status?

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.