The business test, the turnover test and the compliance test
Gross payment status is not a rate somebody puts you on. It is a status you apply for, and it
turns on three tests set out in Schedule 11 to the Finance Act 2004, with the thresholds in
regulation 28 of SI 2005/2045.
The business test asks whether the business carries out construction work in
the UK, or supplies labour for it, and whether it is run through a bank account. For a real
trade business this is a formality.
The turnover test is measured on relevant payments in the 12 months before
the application, excluding VAT and the cost of materials — so it is your labour, not your
invoiced total.
| Applicant | Threshold | Alternative |
|---|
| Sole trader | £30,000 | — |
| Partnership | £30,000 × number of partners | £100,000 in total |
| Company | £30,000 × number of relevant persons | £100,000 in total |
Relevant persons for a company means its directors, and in a close company its beneficial
shareholders. Where the multiple threshold is used it takes the maximum number of
relevant persons at any one time in those 12 months.
The compliance test is the one that fails people. All tax obligations must
have been met on time in the qualifying period, across CIS, PAYE, Self Assessment, corporation
tax — and, since 6 April 2024, VAT.
What changed in 2024, and what changed in 2026
The 2024 reform did four things worth knowing. VAT filing and payment joined the compliance
test, for getting the status and for keeping it, with minor VAT failures expressly not causing
refusal or removal. HMRC's power of immediate cancellation was extended so that it applies where
there are reasonable grounds to suspect fraudulently incorrect returns or information in
relation to VAT, PAYE, Self Assessment or corporation tax. Most landlord-to-tenant payments came
out of CIS scope. And the first compliance review after an application was brought forward from
twelve months to six.
From 6 April 2026 the consequences of losing the status changed rather than the tests
themselves — and they changed a great deal.
From 6 April 2026
Where a business knew or should have known that payments made or received
were connected with the fraudulent evasion of tax: gross payment status is cancelled
immediately; the business becomes liable for the lost tax; a penalty of 30% of the
lost tax is chargeable to the business and to its directors and other
connected persons; and the bar on reapplying rises from one year to
five.
"Should have known" is the phrase to sit with. It is not a test of whether you were party to
anything. It is a test of what a reasonable business in your position would have noticed about
its own supply chain, and it is the reason knowing who you are actually paying has become a
commercial matter rather than an administrative one.
What we do about it
- Work out whether you pass the turnover test now, on the right basis — relevant payments in
the 12 months before application, net of VAT and materials.
- Go through your filing and payment record across all five tax types before you apply,
including VAT, rather than discovering the problem through a refusal.
- Apply, and then protect it — because the first compliance review now comes at six months,
not twelve.
- Keep the CIS, PAYE, VAT and corporation tax deadlines in one place, since they are now one
test rather than four.
