CIS, VAT and MTD, 29 October 2026
CIS gross payment status: how to qualify and keep it
CIS gross payment status means contractors pay you in full, with no 20% taken off. To get it, HMRC must see three things: construction work run through a business bank account, at least £30,000 of turnover in the last 12 months per sole trader, partner or director (ignoring VAT and materials), and a record of paying tax and filing returns on time.
What does gross payment status change?
Cash, mainly. Under standard CIS registration a contractor deducts 20% from the labour part of every payment and passes it to HMRC. If you aren't registered at all, they deduct 30%. With gross payment status they deduct nothing, and you settle your income tax and National Insurance, or corporation tax, at the normal time.
The tax bill doesn't go away. What changes is when you hand the money over. HMRC treats deductions as advance payments towards your tax, so a labour-heavy subcontractor under deduction is paying in advance every month and, for a limited company, waiting until the tax year ends to claim back any excess.
What 20% deductions hold back on a groundworks subcontract
A two-director groundworks company invoices a main contractor £18,000 a month: £12,000 labour and £6,000 materials, plus VAT.
| Labour liable to CISmaterials excluded | £12,000 |
| Deduction each month£12,000 × 20% | £2,400 |
| Held by HMRC over a year£2,400 × 12 | £28,800 |
| Money in the bank each month without gross status£18,000 − £2,400, before VAT | £15,600 |
| Money in the bank each month with gross statusbefore VAT | £18,000 |
The way the deduction is worked out comes from HMRC's CIS 340 guide: exclude the subcontractor's VAT, then take off what the subcontractor paid for materials, consumables, plant hire and fuel (other than travel). The deduction comes off what's left. Travel and subsistence stay in.
Do you pass the turnover test?
You need net construction turnover, meaning without VAT and without materials, of at least:
| Business | Minimum turnover in the last 12 months |
|---|---|
| Sole trader | £30,000 |
| Partnership | £30,000 per partner, or £100,000 for the partnership |
| Limited company | £30,000 per director, or £100,000 for the company |
| Company controlled by five people or fewer | £30,000 for each of them |
HMRC looks at the last 12 months and asks for evidence: bank statements, payment and deduction statements, invoices and contracts.
Turnover test for a two-director building company
A Ltd company with two directors, both shareholders, works out its last 12 months.
| Sales invoiced in the last 12 monthsbefore VAT | £148,000 |
| Less materials on those jobsfrom supplier bills | −£71,000 |
| Net turnover for the test£148,000 − £71,000 | £77,000 |
| Required: two directors × £30,000close company rule | £60,000 |
| Margin over the test£77,000 − £60,000 | £17,000 |
Adding a director changes the number. A close company with gross status must also tell HMRC about new shareholders within 30 days of a change of control, or risk losing the status.
What does the compliance test look at?
Your tax record. HMRC says you must have paid your tax and National Insurance on time in the past, and you must stay on time with returns and payments to keep the status. The annual review allows a small amount of late payments or returns, without saying how many.
For a limited company, HMRC reviews the company itself, not the individual directors or shareholders. Self Assessment, PAYE, CIS returns as a contractor and corporation tax all count. From 6 April 2024, VAT counts too, though minor VAT compliance failures won't on their own lead to gross status being refused or removed.
Can you get gross status? Check in a minute
Apply online with your UTR, bank details and turnover evidence. A false declaration can carry a penalty of up to £3,000.
A small amount of lateness is allowed. Bring everything up to date before you apply and keep the evidence.
Stay registered at 20% and reapply once 12 months of net turnover clears the threshold.
Get returns and payments up to date first. HMRC looks backwards at your record.
Run the business through its own bank account first, then apply.
After a cancellation you wait a year from the date of cancellation. After removal for fraud, the bar is five years.
How do you apply?
Online through GOV.UK, or by post. Registering for gross status also registers you for CIS if you aren't already.
- Gather the paperwork.
UTR, National Insurance number (sole traders), bank details, turnover for the last 12 months, VAT and PAYE references if you have them. Companies also need the UTR, name, address and NI number of each director and person with significant control.
- Collect turnover evidence.
Bank statements, payment and deduction statements from contractors, invoices and contracts.
- Use the right form.
Online through the GOV.UK service (it won't let you save progress, so have everything ready). By post, sole traders use CIS302 and limited companies CIS305.
- Wait for HMRC's decision.
HMRC doesn't publish a timescale. Keep invoicing under deduction until you hear.
- Tell your contractors.
Once approved, contractors verify you with HMRC and the deductions stop.
How do you keep it at the annual review?
Stay on time with every return and payment. If HMRC finds a problem it sends a failure letter. If you don't reply, or HMRC doesn't accept your reason, it writes to say which conditions you missed and that it is withdrawing gross status in 90 days. You have 30 days from that letter to appeal. After a cancellation you wait a year before reapplying.
The stricter rule arrived on 6 April 2026. HMRC can now remove gross status immediately if you make or receive a payment you knew, or should have known, was connected to fraud. It can also charge a 30% penalty, and you can't reapply for five years.
A groundworks firm we spoke to, seven staff plus subbies and about £1m a year of mainly commercial work, still deducts CIS by hand for its own subbies. That's where late returns start, and late returns are what cost firms their status. If you're new to the scheme, read the CIS basics first.
Where Nexley fits
Nexley is the AI back office for UK trade firms: five AI assistants run your tenders, quotes, buying, scheduling and invoicing. It connects to the tools you already work in, you run it all from WhatsApp, and you approve everything. £799 a month.
For CIS, Nexley splits labour and materials on every invoice, works out deductions for the subbies you pay, and reminds you before your monthly return and payment are due, so the record HMRC reviews stays clean. It runs over WhatsApp and drafts into your accounts; you approve what goes out.
Common questions
How long does gross payment status take?
HMRC doesn't publish a turnaround time. Apply with complete evidence to avoid a back-and-forth, and keep working under 20% deduction until you hear.
Can a new business get gross status?
Usually not straight away. The turnover test looks at the last 12 months, so a new firm normally needs a year of trading above the threshold. HMRC can ask about prospective turnover and inherited receipts in some cases, such as a business taken over from a partnership.
Does gross status mean I pay less tax?
No. You pay the same tax, later, through Self Assessment or corporation tax. The gain is cash flow, so put money aside each month for the bill.
What happens if I become a limited company?
The new company must register for CIS and apply for gross status in its own right before it can be paid gross. Talk to your accountant before you switch so there's no gap.
Sources
- GOV.UK: What you must do as a CIS subcontractor, gross payment status
- GOV.UK: What you must do as a CIS subcontractor, annual review
- GOV.UK: Construction Industry Scheme guide (CIS 340)
- GOV.UK: Register a limited company as a subcontractor or apply for gross payment status
- GOV.UK: Register as a sole trader subcontractor or apply for gross payment status
- GOV.UK: Construction Industry Scheme, tackling fraud
- GOV.UK: Claim a refund of CIS deductions if you're a limited company
- GOV.UK: CIS reform, Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024
Every rule, rate and date above was checked against these sources on the date shown at the top.
Topic: CIS, VAT and MTD
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