CIS gross payment status: the three tests and the £30,000

Gross payment status is the difference between being paid £4,000 and being paid £3,200 while HMRC holds the other £800 until your tax return. The work is the same. The tax bill at the end of the year is the same. What changes is who holds your money for the eleven months in between.

Most subcontractors assume the bar is high. It is not: the turnover test for a sole trader is £30,000 of construction turnover excluding VAT and materials. The test that actually costs people gross payment status is the compliance test, and it is measured in days.

Where the status comes from

Sections 63 to 65 of the Finance Act 2004 provide for registration for gross payment — the standard deduction it lets you skip, 20 per cent registered or 30 per cent not, is set out in the Construction Industry Scheme: 20, 30 or nothing. Schedule 11 to that Act sets the conditions, in three parallel Parts: Part 1 for individuals, Part 2 for firms, Part 3 for companies. Each Part contains the same three tests.

Everything is measured over the qualifying period, which paragraph 14 of Schedule 11 defines as "the period of 12 months ending with the date of the application in question".

Test 1 — the business test

Paragraph 2 of Schedule 11 requires an individual applicant to satisfy HMRC that he is "carrying on a business in the United Kingdom which — (a) consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations, and (b) is, to a substantial extent, carried on by means of an account with a bank".

The second limb is the one nobody expects to matter, and occasionally it does. A business run substantially in cash does not pass. HMRC's public guidance renders it as "your business is run through a bank account".

This is a registration test, and it answers nothing about whether the person is genuinely self-employed in the first place — that separate, and more consequential, question is in subcontractor or employee: why CIS registration decides nothing.

Test 2 — the turnover test, and the three figures

Schedule 11 never states an amount. Paragraph 3(1) requires receipts "not less than the amount specified in regulations made by the Board as the minimum turnover"; paragraphs 7 and 11 do the same for firms and companies. The amounts live in regulation 28 of the Income Tax (Construction Industry Scheme) Regulations 2005:

28.—(1) The minimum turnover for the purposes of paragraph 3(1) of Schedule 11 to the Act is £30,000. (2) The amount specified for the purposes of paragraph 7 of Schedule 11 to the Act is £200,000. (3) The amount specified for the purposes of paragraph 11 of Schedule 11 to the Act is £200,000.

That is the version as made in 2005, and it is the version legislation.gov.uk still publishes, because no revised text has been issued. It is out of date. Regulation 2(5) of the Income Tax (Construction Industry Scheme) (Amendment) Regulations 2016, SI 2016/348, says:

In paragraphs (2) and (3) of regulation 28 (minimum turnover) for "£200,000" substitute "£100,000".

Those regulations came into force on 6 April 2016 and have effect for the tax year 2016-17 and subsequent tax years. Regulation 2(6) makes the same substitution in regulation 29(2)(d), which prescribes the evidence.

So the three figures that circulate — £30,000, £100,000 and £200,000 — are all real, and they belong to different places:

Three details make the multiple threshold behave in ways people do not predict.

"Whichever is the smaller" is a ceiling, not a floor. A four-partner firm needs the smaller of £120,000 and £100,000, so £100,000. A ten-partner firm also needs £100,000, not £300,000. The multiplier only bites while the firm is small.

Fluctuating numbers count at their maximum. Regulation 30 provides that where the number of partners or relevant persons has fluctuated over the qualifying period, the number is "the maximum number of partners or relevant persons at any one time in the qualifying period". A director who joined for two months raises the bar for the whole year.

Turnover here is net of materials. HMRC examines construction turnover excluding VAT and the cost of materials. That is the same net figure the section 61 deduction is calculated on, which at least means one number does two jobs. HMRC's manual notes that minor understatements of materials costs increasing net turnover by no more than 5 per cent may be overlooked; larger discrepancies get investigated.

There is also a route in for businesses that are mostly something else. Regulation 31 treats the turnover condition as satisfied where an officer is satisfied that the business does not mainly consist of construction operations, that total turnover in the prior year exceeded the relevant threshold, and that the construction payments in the following year will be incidental to the main business.

Test 3 — compliance, and the exact size of the tolerance

Paragraph 4 of Schedule 11 (paragraph 8 for firms, paragraph 12 for companies) requires the applicant to have complied, throughout the qualifying period, with obligations under section 61, returns under section 70 regulations, PAYE, self-assessment, VAT, and requests for information — and to give reason to expect future compliance.

The VAT limb is recent: it was inserted by the Finance Act 2024 and applies alongside the wider power, also from 6 April 2024, for HMRC to cancel gross payment status immediately where it has reasonable grounds to suspect fraud involving VAT, Corporation Tax, Income Tax or PAYE.

Now the part worth printing out. Regulation 32 of SI 2005/2045 sets out prescribed circumstances in which a failure is disregarded. Table 3, as substituted by regulation 2(7) of SI 2016/348, reads:

Read that as a budget, because that is what it is. You have two late monthly returns a year, each up to 28 days late. You have two late payments of £100 or more a year, each up to 14 days late. The third one in a rolling twelve months is a compliance failure, and a compliance failure is a reason to withdraw gross payment status.

The most common way to lose the status is therefore not fraud, or a bad year, or a dispute. It is being a fortnight late three times.

How the status is lost

Section 66(1) of the Finance Act 2004 lets HMRC cancel registration for gross payment where it appears that registration would be refused on a fresh application, that incorrect returns or information were provided, or that obligations were not met. HMRC runs a scheduled review — internally the Tax Treatment Qualification Test — and its manual describes what happens after a "Fail": the case goes to a worklist, the subcontractor is contacted about a reasonable excuse, and failures more than 12 months before the date the test is finalised are marked as not active.

Two timings follow, and they are very different.

The ordinary route, section 66(2). Cancellation takes effect at the end of a prescribed period after the determination. Regulation 26 of SI 2005/2045 sets that period: "90 days from the date of the notice given under sub-section (5) of that section." Ninety days is enough time to appeal under section 67, and enough time to tell your contractors.

The fraud route, section 66(3) and (4). Where HMRC has reasonable grounds to suspect that the registration was obtained on false information, that fraudulent returns or information have been supplied, or that obligations were knowingly not met, the cancellation has immediate effect.

And then section 66(6): after a cancellation under subsection (1), the person "may not, within the period of one year beginning with the day on which the cancellation takes effect", apply again for registration for gross payment.

A year at 20 per cent, on £150,000 of labour, is £30,000 of your cash sitting with HMRC for most of that year.

If you do not have it: getting the money back

Gross payment status is not the only way to be made whole, only the fastest. What matters otherwise is evidence and the mechanism, and the mechanism differs by legal form.

Everyone: the deduction statement. A contractor who makes a deduction must give you a written statement within 14 days of the end of each tax month — so by the 19th, the same date the return is due. It must show the contractor's name and tax reference, the end date of the tax month, your name and Unique Taxpayer Reference, the verification number where the higher rate was applied, the gross amount paid, the cost of materials that reduced the amount, and the amount of the deduction. Without it you are claiming credit for tax you cannot prove was ever handed over.

Sole traders and partnerships claim the deductions on the Self Assessment return, against the year's Income Tax and Class 4 National Insurance, with any excess repaid.

Companies do not. Regulation 56 of SI 2005/2045 applies the deductions in a fixed order against the company's own liabilities as an employer:

1. primary Class 1 National Insurance on employees' earnings;
2. secondary Class 1 National Insurance;
3. PAYE tax deducted from employees;
4. student loan deductions;
5. refunds of statutory sick, maternity, paternity or adoption pay funding;
6. last, CIS the company has itself deducted from its own subcontractors.

Only what is left after all six is repaid — and regulation 56(5) provides that HMRC will not repay it until the tax year in which the deduction was made has ended and the company has delivered its year-end PAYE return. Regulation 56(6) allows an outstanding Corporation Tax liability from an earlier accounting period to be retained out of it.

That is a long wait, and it is the single strongest financial argument for applying for gross payment status if you trade through a company and your PAYE bill is smaller than your CIS deductions.

What to do this week

1. Work out your net-of-materials construction turnover for the last twelve months. If you are a sole trader over £30,000, the turnover test is not what is stopping you.
2. Count your late returns and late payments over the last twelve months. Two of each is the budget. If you are at two, the next one is not a slip, it is the one that costs you the status.
3. Check the bank account limb. The business test is not only about doing construction work.
4. Keep every deduction statement, and reconcile them monthly against what you invoiced. They are the only proof that the tax left your invoice.
5. If you are a company with gross payment status refused or cancelled, compare your monthly PAYE bill with your monthly CIS deductions. Where the deductions are larger, regulation 56 means the surplus is locked up until after 5 April.

---

Position as at 29 August 2026. This article describes the law and is not tax advice. Legislation.gov.uk publishes SI 2005/2045 only in its original 2005 form, so the amounts shown there for regulations 28(2) and (3) do not reflect SI 2016/348; where this article gives a current figure, the amending instrument is cited alongside it.

What Zirko does here: materials and labour stay as separate lines from quote to invoice, so the net-of-materials figure the turnover test uses is a report rather than a reconstruction. Zirko does not apply for gross payment status, does not file CIS returns and does not issue deduction statements — those happen in HMRC's systems and in your contractor's.