CIS gross payment status: 3 HMRC tests to pass (2026 guide)

Most CIS subcontractors operate at the standard 20% deduction rate — every invoice gets 20% withheld by the contractor and paid to HMRC on account. If you're not registered for CIS at all, that becomes 30%. Both rates create a cashflow drag that can be brutal, especially on big jobs with materials carried up front.

Gross payment status changes that. Contractors pay you the full invoice — no deduction — and you settle your tax bill at year-end like any other self-employed business. This guide covers the three HMRC tests, the application process, what trips people up, and what to do if your status gets withdrawn.

What CIS gross payment status actually is

The Construction Industry Scheme is HMRC's mechanism for collecting tax from subcontractors before they file a return. By default, the contractor (the firm paying you) deducts a percentage of every invoice and pays it to HMRC against your eventual tax bill.

There are three rates:

• 30% deduction — for subcontractors not registered with HMRC under CIS
• 20% deduction — for subcontractors registered under CIS at the standard rate
• 0% deduction (gross status) — for subcontractors approved for gross payment

Gross status doesn't change how much tax you owe at year-end — it changes when you pay it. Instead of HMRC collecting 20% from every invoice and you reconciling at year-end (almost always with a refund coming back to you), you receive the full invoice and settle the actual tax owed in one or two Self Assessment payments.

For the breakdown of how the rates compare in real money — and what each one costs at three different turnover levels — see the guide on CIS deduction rates explained.

Why it matters: the cashflow maths

Take a subcontractor invoicing £8,000/month gross of labour (materials excluded). Under each status, what hits the bank:

Over a year that's £28,800 more cash in hand than the unregistered rate, and £19,200 more than standard. You'll still owe income tax and Class 4 NI on the profit — but you keep the float until 31 January. For anyone running a van, paying for materials up front, or employing themselves as a Ltd Co. director, that timing makes the difference between healthy cashflow and constant overdraft.

The three HMRC tests you have to pass

HMRC requires you to satisfy all three tests on application and on every annual review:

1. The business test

You must run a construction business in the UK and:

• Be registered for Self Assessment (or Corporation Tax if a Ltd Co.)
• Operate with a UK bank account where contractors will pay you
• Have premises or a fixed place of work — a van counts; an address counts
• Be carrying out construction operations as defined by the CIS rules (groundwork, plumbing, sparkie, brickwork, plastering, etc.)

Most established subbies pass this on the day they apply. The bit that catches people out is the bank account requirement — joint accounts and personal-only current accounts can be flagged. A dedicated business account isn't legally required for sole traders but makes the test easier.

2. The turnover test

For a sole trader applying for gross status, your construction turnover (excluding VAT and excluding the cost of materials) must be at least £30,000 in the previous 12 months.

• For partnerships, you can qualify two ways: £30,000 per partner OR £200,000 in total construction turnover
• For limited companies, the same alternative tests apply: £30,000 per director OR £200,000 total — meet either

Materials are excluded — only the labour element counts. If you invoice £45,000 a year and £20,000 of that was materials passed through, your CIS turnover is £25,000 and you don't qualify yet.

3. The compliance test

This is the one that most often fails on application. You must have complied with all your tax obligations for the past 12 months. HMRC looks at:

• Filing every required return (Self Assessment, CIS monthly returns if you're also a contractor, VAT, payroll/PAYE) on time
• Paying every tax bill on time — Self Assessment balancing payments, payments on account, CIS deductions if you're a contractor
• Notifying HMRC of any chargeability changes within the required windows

HMRC accepts a small number of minor failures. Their published guidance allows up to three late payments under £100 each, or one Self Assessment paid up to 28 days late, without auto-failing. Beyond that, expect a refusal.

How to apply: form CIS302

Short summary below. For the field-by-field walkthrough of every meaningful box on CIS302 (and the equivalent CIS305 for limited companies / CIS304 for partnerships) plus the most common rejection reasons, see the full CIS302 application walkthrough.

1. Make sure you're already registered for CIS as a subcontractor — see HMRC's how-to-register guidance. Gross status is an upgrade, not a first-time registration.
2. Complete form CIS302. The online version pre-fills your details from your Government Gateway account.
3. HMRC reviews against the three tests above. Decision typically arrives within 8 weeks.
4. If approved, you'll get a confirmation letter and your status updates on the CIS verification system. Contractors who verify you from that date onwards see a 0% deduction rate.
5. If refused, you can apply for an internal review within 30 days, then appeal to the First-tier Tribunal if still refused.

What HMRC actually checks

The compliance test is where applications most commonly fail. HMRC runs a back-office check across these systems:

• Self Assessment. Did you file the last return on time? Did you pay the balancing payment and both payments on account on time?
• Class 2 NI. Up to date (now collected via Self Assessment, but pre-2024 arrears can still flag).
• VAT. If registered, every quarterly return on time and every payment on time.
• PAYE. If you employ anyone, RTI submissions on time and PAYE/NI paid on time.
• CIS as a contractor. If you also pay subbies, monthly CIS returns and deductions on time.
• Companies House. If a Ltd Co., accounts and confirmation statements filed on time.

Keeping gross status once you have it

Gross status isn't permanent. HMRC reviews your record every 12 months — same three tests. Most subbies don't realise their status is being silently re-tested in the background until the day they get a withdrawal letter.

The most common reasons for losing it:

• One Self Assessment paid more than 28 days late
• A run of small late payments (each under £100) that exceeds three
• Missing a CIS monthly return if you also operate as a contractor
• Late VAT return after registering for VAT post gross-status grant

Set every HMRC deadline as a recurring calendar event. If you're going to be late on a payment, contact HMRC before the deadline to set up Time to Pay — that protects the compliance record.

If HMRC withdraws your status

Withdrawal isn't immediate. HMRC sends a letter giving you 90 days before the change takes effect. During that 90 days you can:

Detailed walkthrough — what the CIS308 notice looks like, the 30-day appeal deadline, internal review vs Tribunal, and how to re-apply once the 12-month bar lifts — is in the dedicated withdrawal guide.

1. Request an internal review — different HMRC officer reviews the decision against the rules
2. Appeal to the First-tier Tribunal if the internal review upholds the withdrawal
3. Re-apply later once you've cleared 12 months of clean compliance from the date of any tax issue that caused the withdrawal

Tribunal cases regularly succeed where the subbie can show "reasonable excuse" — bereavement, serious illness, severe weather affecting a one-off payment, HMRC system outages. They rarely succeed for cashflow excuses or accountant errors.

Sole trader vs limited company

The three tests apply to both, but the turnover thresholds differ and Ltd Cos. have an extra moving part: dividends.

Sole trader

• £30,000 turnover threshold (labour, ex-VAT, ex-materials)
• Compliance test covers Self Assessment + Class 4 NI + VAT (if registered)
• Apply via form CIS302

Limited company

• £30,000 per director OR £200,000 total construction turnover — meet either threshold
• Compliance test covers Corporation Tax, Companies House, PAYE, VAT, plus the directors' personal Self Assessments
• Apply via form CIS305
• If a director's personal SA is late, the company's gross status is at risk

Your application checklist

1. Confirm you're registered for CIS as a subcontractor (CWF1 done).
2. Add up your last 12 months of labour-only construction turnover. £30,000+ for sole traders.
3. Pull your last two Self Assessments — were both filed and paid on time? If not, fix any open balances first.
4. If VAT-registered, confirm last four quarterly returns and payments were on time.
5. If you employ anyone, check RTI submissions and PAYE payments are clean for the past 12 months.
6. Apply via form CIS302 (sole trader) or CIS305 (Ltd Co.).
7. Set calendar alerts for every HMRC deadline going forward — gross status survives on punctuality.