Get gross payment status and stop the deduction at source entirely

You invoice a main contractor £19,000 and £16,000 lands. The £3,000 is not lost, it is sitting with HMRC as a credit against a tax bill you have not been charged yet, and most of it comes back. In the meantime it is your working capital funding someone else's timing, and the fix is a status HMRC will grant you on application if you can pass three tests.

Gross payment status means the contractor pays your invoice in full and you settle your own tax at the ordinary dates. It also changes what a contractor sees when they verify you, because HMRC's verification response tells them which rate to apply, and gross is the only one of the three that says something about your filing record rather than just your registration.

This page is the three tests with the paragraph of Schedule 11 beside each one, the arithmetic of what the deduction actually costs you across a year, how to apply, and the two clocks that decide what happens if HMRC ever moves to take it away.

What the deduction costs you across a year

Deductions come off labour, not materials. A subcontractor registered under the Construction Industry Scheme has 20% taken from the labour element of every contract payment; an unregistered one has 30% taken (FA 2004 s61, and the rates as published by HMRC). On a single invoice of £19,000 made up of £15,000 labour and £4,000 of materials you supplied:

Now run that across a full tax year at £15,000 of labour a month, which is £180,000 of labour invoiced. The deduction is £3,000 a month, £36,000 for the year. What matters is not the total, it is how long each slice is out of your hands, because a sole trader's excess deductions come back after the Self Assessment return goes in for that year.

Add up how long each £3,000 sits there and you get £234,000 of pound-months, which is an average balance of £19,500 removed from your business every day of the year. That is the number worth carrying around. It is a van, a materials package, or the difference between paying your own subbies on day 14 and paying them when the main contractor gets round to you.

A limited company recovers faster, because the deductions suffered are set against the company's PAYE, National Insurance and CIS liabilities month by month through the Employer Payment Summary. Faster is not the same as fast. A company running a £1,200 monthly PAYE bill and suffering £3,000 a month of CIS still builds a credit at HMRC that grows by £1,800 every month and settles at the year end. The mechanics of getting it back either way are in claiming your CIS deductions back.

The three tests, and which paragraph each one lives in

Schedule 11 to the Finance Act 2004 sets the conditions, and it is written three times over: Part 1 for individuals, Part 2 for firms, Part 3 for companies. The tests are the same three in each part, with different paragraph numbers.

All three have to hold. There is no partial pass.

Test one: a construction business, run through a bank account

Paragraph 2(1) asks you to satisfy HMRC that your business "consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour" in the carrying out of construction operations, that it is carried on in the United Kingdom, and that it is "to a substantial extent carried on by means of an account with a bank".

Most people read the first half and skip the second, and the second half is the one that trips applications. A limited company has to bank separately anyway because it is a separate legal person. A sole trader has no legal obligation to hold a business account, and plenty run the trade through a personal current account for years without incident. For gross payment status the account is part of the test, so a sole trader chasing gross status needs the business banked properly, with the trading receipts visibly going through it, before the application goes in.

Test two: £30,000 of construction turnover, net of VAT and materials

Regulation 28(1) of the Income Tax (Construction Industry Scheme) Regulations 2005 (SI 2005/2045) sets the figure plainly: "The minimum turnover for the purposes of paragraph 3(1) of Schedule 11 to the Act is £30,000."

What counts towards it is net construction turnover: your construction receipts in the 12 months before the application, excluding VAT and excluding the cost of the materials you supplied. Labour and your own margin, in other words, which is the same base the 20% comes off.

The standard test scales that £30,000 by how many people are behind the business (HMRC's Construction Industry Scheme Reform manual, CISR44160):

A person who is both a director and a shareholder counts once, not twice.

Then paragraph 11(2) puts a ceiling on it. The minimum turnover for a company is the smaller of the multiple and the amount set in regulations, and the alternative test at CISR44170 states that figure: net construction turnover of £100,000 or more in the 12 months before the application, for a partnership or a company. So the multiple runs up and then stops:

Four is where the ceiling starts doing work, and it is the reason a six-director firm is not asked for £180,000.

Two more things about the turnover test are worth knowing before you fill anything in. It cannot be met pro rata: CISR44160 is explicit that a part-year trading history or part-time working does not scale the threshold down, and the full amount has to have been achieved in the 12 months before the application. And HMRC does check the figure you enter against your records, using CIS deduction statements, invoices and bank statements, with a stated tolerance of 5% (CISR44050). Understating your materials cost to inflate net turnover is checked separately at CISR44060, again on a 5% tolerance, and a substantial discrepancy there can cost you the status after it has been granted.

One structure escapes the test entirely. Under paragraph 11(1)(b), a company whose shares are wholly owned by companies that themselves hold gross payment status does not have to sit the turnover test at all (CISR44180). That relief runs between companies only.

Test three: your filing record, and VAT since 6 April 2024

Paragraph 4 is the compliance test, and it looks back over the qualifying period at everything you were supposed to file and pay: deductions due under section 61, contractor returns under section 70, PAYE tax, self assessment returns, VAT accounting and payment, requests for information from HMRC, and National Insurance contributions. It then adds a forward-looking limb: HMRC has to have reason to expect you will comply with all of it going forward.

VAT is the newest name on that list. It was added to the compliance test on 6 April 2024, and it is the change most likely to catch a business that has held gross status comfortably for years while treating its VAT return as the one deadline with some give in it.

The test is not zero tolerance, and the tolerances are written down. Regulation 32 of SI 2005/2045 carries Table 3, which sets out the failures that are treated as no failure at all:

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024 (SI 2024/308) folded VAT into that same structure, adding VAT returns to the filing obligation in the first row and VAT due to HMRC following a VAT return to the payment obligation in the second, with effect from 6 April 2024.

On top of the table there is a de minimis. HMRC's automated test disregards a liability of £99.99 or less, whether paid late or still outstanding, and it can apply more than once across PAYE tax, CIS deductions and VAT. Late payment of interest charges, and outstanding interest charges, on Corporation Tax and Self Assessment are ignored too (CISR43070). A Time to Pay arrangement that you actually stick to can also carry you through the test (CISR43090), which makes agreeing one early a materially different act from simply paying late.

The forms, and where they go

Each of the three does double duty: it registers you as a subcontractor and applies for gross payment status in one go, so a business starting from scratch does not need to register net first and upgrade later. If you are not registered at all yet, the ordinary route and what it needs is in registering for CIS.

Have the paperwork out before you start, because the online application does not let you save your progress. You need your Unique Taxpayer Reference, National Insurance number for an individual, VAT registration number if you have one, business bank details, and the turnover evidence for the 12 months before the application. A company applying from outside the UK may be asked for a tax clearance certificate from its home tax authority. The postal address for all three forms is PT Operations North East England, HM Revenue and Customs, BX9 1BX.

The test that runs every year without you

Gross payment status is not granted once. HMRC re-runs it automatically through the Tax Treatment Qualification Test, and it does so on its own schedule: the first run is six months after the status is granted, and after that it runs annually for everyone holding gross payment (CISR43070).

Each run looks at a rolling twelve months. Only obligations that fell due inside that window are assessed, so a bad quarter genuinely does age out. CISR49030 confirms this from the other direction: where the failures the test has flagged are more than 12 months old at the point HMRC finalises the case, they are marked inactive and the test can pass. Before withdrawing the status from an existing holder, HMRC also has to consider whether you had a reasonable excuse for the failures it found.

For a business with a real filing rhythm this is a non-event. For a business that files when it remembers, the annual test converts an administrative habit into a pricing problem, because the day you lose gross status is the day 20% starts coming off every payment again. Getting your VAT and CIS filing dates onto the same calendar as your invoicing is the whole of the defence, and it is worth an hour with your accountant to line the dates up once rather than discovering the gap through a TTQT result.

If HMRC moves to cancel: 90 days, then 30

Two periods, running in that order, and neither is the other.

The 90 days. Where HMRC cancels your registration for gross payment under section 66(1) FA 2004, the cancellation does not bite on the day of the letter. Regulation 26 of SI 2005/2045 sets the prescribed period: "the prescribed period is 90 days from the date of the notice given under sub-section (5) of that section." You keep being paid gross while it runs. It is also enough time to reprice, tell your main contractors, and arrange the cash for the deduction that starts on day 91.

The 30 days. Section 67(2) gives you 30 days from the refusal or cancellation to give notice of appeal. That window sits inside the 90 days, which is why the letter needs opening the week it arrives rather than the month it arrives. If you do appeal, section 67 keeps your gross payment status in place until the appeal is abandoned, decided by the tribunal, or finally determined by the Upper Tribunal or a court.

Immediate cancellation is a separate route. Under section 66(3), where HMRC has reason to suspect the registration was obtained on false information, or that you fraudulently made an incorrect return or provided incorrect information, or knowingly failed to comply with an obligation, the status goes with immediate effect and no 90 days. The obligations that route reaches are named in the subsection: CIS itself, the PAYE regulations, self assessment returns, and the Value Added Tax Act 1994. VAT joined that list on 6 April 2024, alongside its arrival in the compliance test.

The re-entry rules changed for 2026 and the difference is large. After an ordinary cancellation under section 66(1) you cannot apply again for one year from the day the cancellation takes effect. After an immediate cancellation you cannot apply again for five years, where the behaviour occurred on or after 6 April 2026, against one year for behaviour before that date (CISR16110).

Where the tax goes instead

Gross payment status moves the tax, it does not remove it. A sole trader settles through Self Assessment, with the balancing payment and the first payment on account due on 31 January and the second on 31 July. A company pays Corporation Tax nine months and one day after the end of its accounting period. Your main contractor still reports the payments to you on their monthly CIS300, so the amounts are still visible to HMRC, they are simply visible without a deduction attached.

Which means the £19,500 the deduction used to hold is now sitting in your account with your name on it and a date attached. Contractors who handle that well tend to do the same thing: a fixed percentage of every gross payment moves into a second account on the day it lands, and the tax dates are met out of that rather than out of trading cash. The CIS deduction calculator will give you the figure per invoice if you want to size the transfer against real numbers rather than a guess.

What it costs

There is no monthly subscription on AEC Stack. The platform fee is 2.5% of each invoice processed through the platform, collected on the payment due date, so what your invoicing costs you arrives when the money does. There are no separate charges for the application, the filing dates or the arithmetic, and your pricing stays entirely yours.

Work out your own number first. Take your labour invoiced over the last 12 months, take 20% of it, halve that, and you have roughly the average balance sitting with HMRC instead of with you. If that figure is worth an afternoon, get your bank account, your turnover evidence and your last 12 months of filing dates in front of you and put the application in. Then set your invoicing up so the CIS split, the VAT rate and the filing dates all come off the same record: start here.