CIS gross payment status: how to qualify, and how companies lose it

HMRC looks at your construction turnover for the last 12 months, stripped of VAT and the cost of materials. That second part catches people out. If you turned over £900,000 but £600,000 of it was materials, your net construction turnover is £300,000, and that is the figure HMRC works from.

For a limited company the bar is at least £30,000 for each director, or at least £100,000 for the whole company. Where the company is controlled by five people or fewer, you need £30,000 for each of them. A two director company with a reasonable order book clears this comfortably. A company with six or seven people on the share register has a higher hurdle than it expects.

Your business also has to be doing construction work in the UK, or supplying labour for it, and it has to be run through a bank account. That last test sounds trivial until you meet a company where the director still takes cash for small jobs and settles supplier invoices from his personal current account. HMRC wants to see business money moving through a business account.

This is the change most companies have not registered. HMRC added VAT to the statutory compliance test, both for being granted gross payment status and for keeping it. Your CIS returns, PAYE, corporation tax and self assessment history already counted. Now your VAT record sits alongside them.

HMRC has said minor VAT failures will not be held against you, which is sensible. A return filed two days late once is not what this is aimed at. The target is supply chain fraud, and the same rules give HMRC grounds to cancel gross payment status immediately where it suspects a return or piece of information was provided fraudulently, now covering VAT, corporation tax, income tax and PAYE.

There are appeal rights if the status is refused or withdrawn on VAT grounds. But appealing is slow and you are living without the cash flow while it runs. Far better to have twelve months of clean filings behind you before you apply.

If your VAT returns in construction have been filed on the old basis without the domestic reverse charge applied properly, that is worth sorting first. We cover that in domestic reverse charge VAT for construction explained.

HMRC brought forward the first review of a gross payment status holder’s compliance history from twelve months after the application to six months, then reverts to annual reviews after that. So the first half year after you are granted the status is the half year where your filing discipline is under the closest look it will ever get. HMRC set out the change in its guidance on strengthening the tests for gross payment status.

In practice that means every monthly CIS return filed on time, every PAYE submission on the day, VAT in on the deadline, and the corporation tax payment made when it falls due. Not most of them. All of them.

From 6 April 2026 contractors also have to file a nil return for any month where they have not paid a subcontractor, unless they have told HMRC in advance that there will be no payments that month. The old position, where you could simply file nothing, is gone. We have already seen companies pick up late filing penalties from forgetting a quiet month in winter, and a run of those penalties is exactly the sort of record that puts a review in the wrong direction.

When a construction company comes to us wanting gross payment status, the first thing we do is go into the HMRC portal and look at what has actually been filed, rather than what the last accountant said was filed. The two are not always the same.

One construction client arrived after years with an accountant who was filling in forms and nothing more. In the first meeting we found over £100,000 of the company’s own money stuck at HMRC because CIS and VAT returns had been filed incorrectly for years. They had taken a loan to cover costs while that money sat there. Applying for gross payment status on top of that record would have gone nowhere.

So the order matters. Put the returns right, get six to twelve months of clean filing behind you, then apply. The application form itself takes very little time once the history underneath it is sound. Applying first and hoping the history holds up is how companies end up refused and waiting.

If you suspect your own returns have been wrong for a while, start with CIS returns filed wrong for years.

Gross payment status changes your cash position, and it changes nothing about what you owe. Contractors pay you in full, you declare the income in your corporation tax return, and the tax falls due at the normal time. Companies that treat the extra cash as profit rather than tax money set aside are the ones who struggle at year end.

The practical answer is a separate account and a monthly transfer based on where your profit actually sits, which is why management accounts start to earn their keep at this size. You also want the rest of the house in order: subcontractor verification done properly, employment status defensible, and HR, contracts and safety policies in place if you are bidding for work that comes with an audit attached.

For construction clients we arrange a discounted Croner subscription so contracts and policies are there when a main contractor or an auditor asks for them, rather than being written the week before. More on that in what HR and contracts an audit ready construction company needs.