Gross payment status is the difference between being paid your invoice and being paid 80% of it. For a labour-only subcontractor it is worth twenty per cent of turnover in working capital, permanently. The turnover bar is far lower than most trades assume — £30,000 net of VAT and materials — and the real hurdle is the compliance test. Since 6 April 2026 the cost of losing it has become severe enough to change how you run the business.
Guide · Updated August 2026
With gross payment status, a contractor pays your invoice in full and makes no CIS deduction. Your tax does not disappear — you still pay income tax and Class 4 NIC through Self Assessment, or corporation tax as a company. What changes is when. Instead of HMRC holding 20% of your labour from the day of each invoice until after 5 April, you hold it, and you pay it when it is due.
For a labour-only subcontractor the deduction base is close to 100% of turnover, so the effect is close to 20% of turnover in permanent working capital. On £180,000 of labour invoicing that is around £36,000 that stops being locked up. It is the single largest cash-flow lever available to a trade business, and it is free.
Since March 2021 a subcontractor's sales to VAT-registered contractors carry no VAT under the domestic reverse charge. The output VAT that used to sit in the business account for up to four months is gone from the cycle for good. Losing the VAT float and suffering a 20% CIS deduction compound in the same direction — which is why gross payment status went from useful to close to essential.
The easiest of the three. The business must carry out construction work in the UK, or supply labour for it, and it must be run through a bank account. That is the whole test. A trade with a business bank account and construction work passes it without thinking about it.
Measured on relevant payments in the twelve months preceding the application, and crucially excluding VAT and the cost of materials. It is your labour turnover that is tested, not your invoiced total. The thresholds are in SI 2005/2045 regulation 28, with the multiple thresholds in FA 2004 Schedule 11.
| Applicant | Threshold |
|---|---|
| Sole trader | £30,000 |
| Partnership — multiple test | £30,000 × number of partners |
| Partnership — alternative | £100,000 in total |
| Company — multiple test | £30,000 × number of relevant persons |
| Company — alternative | £100,000 in total |
"Relevant persons" for a company means its directors and, in a close company, its beneficial shareholders. The multiple threshold uses the maximum number of relevant persons at any one time during the twelve months, not the number today — so a director who joined and left in that window still counts against you.
The alternative £100,000 test exists precisely because the multiple test can be harsh. A partnership or company either passes the multiple test or passes £100,000 in total; it does not need both.
A limited company has two directors, both shareholders. Its last twelve months of relevant payments were £240,000 including £40,000 of VAT and £58,000 of materials it bought itself.
Turnover for the test is £240,000 − £40,000 − £58,000 = £142,000.
Had a third director been in post for part of the year, the multiple test would have needed £90,000 — still passed. The company only has a problem if both tests fail. Check your own position with the gross payment status checker.
The number of trades that assume they are too small for this and are not is remarkable. A single full-time tradesperson invoicing labour is usually well past £30,000 net of materials. If you have never applied because you assumed the bar was six figures, the bar is £30,000.
All tax obligations must have been met on time in the qualifying period. The tax types tested are CIS, PAYE, ITSA, CTSA and — since 6 April 2024 — VAT.
Adding VAT to the compliance test was the 2024 reform's real teeth. A business with an immaculate CIS record and two late VAT returns is now in scope for refusal or removal in a way it was not before. Two mitigations were built in following consultation and both matter: minor VAT compliance failures do not cause refusal or removal, and the reform digitalised CIS registration applications.
The same 2024 package brought the first compliance review forward from twelve months to six months after application. A business granted gross status now gets looked at twice as soon as it used to.
It also extended FA 2004 s66(3): HMRC can cancel gross payment status immediately where it has reasonable grounds to suspect fraudulently incorrect returns or information in relation to VAT, PAYE, ITSA or CTSA — not just CIS.
The anti-fraud package announced at Budget 2025 is the most significant hardening of this regime in years. Where a business knew or should have known that payments it made or received were connected with fraudulent evasion of tax:
Read the second and third bullets together. "Should have known" is a lower bar than knowledge, the liability is for somebody else's lost tax, and the 30% penalty reaches directors personally. For a business that engages labour through long subcontract chains, this is a reason to know who is in the chain — not a filing detail.
The other confirmed grounds for immediate cancellation are false information at registration, a fraudulently incorrect return or information, and knowingly failing to comply with a CIS obligation. Five years without gross status would end most labour-only subcontractors.
If you have lost gross status and it was not for fraud, the position is recoverable — the five-year bar attaches to immediate removal in the fraud cases. Rebuild a clean compliance record across all five tax types and reapply. If you have never had it, the gross payment status service page sets out how we handle the application and the six-month review that now follows it.
It does not take you out of the VAT reverse charge. This catches people every year. The reverse charge applies where a payment is reportable under the CIS regulations, not by reference to whether deductions are actually made — so a subcontractor with gross payment status is still within the reverse charge and still invoices with no VAT to a VAT-registered contractor who is not an end user. Nor does it change your employment status position, or the status of the people you engage: see the employment status guide.
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£30,000 for a sole trader, measured on relevant payments in the twelve months before the application and excluding both VAT and the cost of materials. A partnership needs £30,000 multiplied by the number of partners, or £100,000 in total, whichever it can satisfy. A company needs £30,000 multiplied by the number of relevant persons — its directors, and in a close company its beneficial shareholders — or £100,000 in total. The multiple test uses the maximum number of relevant persons at any one time in the twelve months. Because materials and VAT come out, the figure being tested is your labour turnover, which is why the bar is much lower than most trades expect.
It can. Since 6 April 2024, VAT filing and payment obligations form part of the compliance test both for obtaining gross payment status and for keeping it, alongside CIS, PAYE, income tax self assessment and corporation tax self assessment. The reform did build in a protection: minor VAT compliance failures do not cause refusal or removal. But a pattern of late VAT returns is not a minor failure, and a business with a perfect CIS record can now lose gross status over VAT. If your sales are reverse-charged and you are in a repayment position, monthly VAT returns both accelerate your refunds and keep the filing habit frequent.
You revert to being paid under deduction at 20%, so a fifth of your labour invoicing starts being withheld and only comes back after the tax year ends. Where removal is immediate because HMRC has reasonable grounds to suspect fraud, or because the business knew or should have known that payments were connected with fraudulent evasion of tax, the consequences from 6 April 2026 are far worse: the business becomes liable for the lost tax, faces a penalty of 30% of it that is chargeable to directors and other connected persons as well as the company, and cannot reapply for five years rather than one. Ordinary compliance failures do not carry the five-year bar.
No, and this is the most common misunderstanding about it. The VAT domestic reverse charge uses the CIS definition of construction operations to set its scope, and it applies where the payment is reportable under the CIS regulations — not by reference to whether a deduction is actually made. A subcontractor with gross payment status is therefore still inside the reverse charge, and still invoices a VAT-registered, CIS-registered contractor with no VAT added and a statement that the customer must account for it. The only things that take you out are the customer being an end user or an intermediary supplier and notifying you in writing, or the supply being zero-rated.
Sooner than it used to. Before the 2024 reform the first compliance review came twelve months after application; it is now brought forward to six months. So a business that applies, is granted gross status, and then lets a VAT return or a CIS return slip in its first half-year is reviewed while that failure is still recent. In practice this means the six months immediately after a successful application are the ones to be most careful in, not the least. Registration applications themselves were digitalised at the same time, which has shortened the front end of the process considerably.
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