Three tests, one of which is the real hurdle. VAT joined the compliance test in 2024, and from April 2026 losing the status costs the business, the lost tax, a penalty reaching its directors personally, and five years before you can reapply.
Three tests
Gross payment status 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 measures your labour turnover.
| 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 requires all tax obligations to have been met on time in the qualifying period, across CIS, PAYE, Self Assessment, corporation tax — and, since 6 April 2024, VAT.
The 2024 reform did four things. 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 tests stayed the same, and the consequences of losing the status became much more serious.
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" means the test is what a reasonable business in your position would have noticed about its own supply chain, whether or not you were party to anything. That makes knowing who you are paying a commercial matter as well as an administrative one.
It is measured on your relevant payments in the 12 months before the application, excluding VAT and excluding the cost of materials. A sole trader needs £30,000. A partnership needs £30,000 multiplied by the number of partners, or £100,000 in total as an alternative. A company needs £30,000 multiplied by the number of relevant persons — its directors, and in a close company its beneficial shareholders — or again £100,000 in total. Where the multiple threshold is used it takes the maximum number of relevant persons at any one time during those 12 months, which can be higher than the number today.
Yes, since 6 April 2024. VAT filing and payment obligations were added to the compliance test both for obtaining gross payment status and for keeping it. There is a sensible limit: minor VAT compliance failures do not cause refusal or removal, which was added following consultation. But a pattern of late VAT returns can now cost you gross payment status, which it could not before 6 April 2024.
Substantially. From 6 April 2026, where a business knew or should have known that payments it 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, and a penalty of 30% of that lost tax is chargeable — to the business and to its directors and other connected persons. The bar on reapplying after an immediate removal rises from one year to five. The other grounds for immediate cancellation are confirmed as false information at registration, a fraudulently incorrect return or information, and knowingly failing to comply with a CIS obligation.
Usually yes, because the benefit is not proportional to how comfortably you pass. Gross payment status stops 20% of your turnover being held back and recovered months or years later, and for a labour-only business the deduction base is close to the whole invoice. £30,000 net of VAT and materials is a low bar for a full-time trade. The harder test is the compliance test. Check your filing record across all five tax types before you apply.
Three months of returns and statements, a straight account of what is wrong and what it is costing, and a number on the gross payment status question.