How To Improve Cashflow In a Construction Business (Achieve a 0% CIS Deduction Rate)
Updated: Aug 24
Key Takeaways
CIS gross payment status lets a registered subcontractor be paid the full invoice with 0% tax deducted, instead of the standard 20% withheld at source.
To qualify you must pass three HMRC tests: the business test, the turnover test, and the compliance test.
The turnover test needs at least £30,000 of net construction turnover (excluding VAT and materials) per sole trader or per partner/director — or £100,000 for the whole business under the alternative test.
Since 6 April 2024, VAT compliance is part of the test, and HMRC can cancel gross payment status immediately for serious compliance failures or suspected fraud.
You apply online through your Government Gateway account or when you first register for CIS; HMRC's decision typically takes around eight weeks.
CIS gross payment status is an HMRC approval that lets construction subcontractors receive payments in full, with no Construction Industry Scheme deduction taken off. Instead of a contractor withholding 20% of your labour and passing it to HMRC, you're paid gross and settle your own tax through Self Assessment or Corporation Tax once a year. It applies to sole traders, partnerships, and limited companies working under CIS who can pass HMRC's three qualifying tests.
How does a 0% CIS deduction rate improve the cashflow in my construction business?
Gross payment status (GPS) is the difference between being paid £10,000 and actually banking £10,000. Under the Construction Industry Scheme, contractors normally deduct tax before they pay you — 20% for registered subcontractors, or 30% if you're not registered or can't be verified. Those deductions are an advance on your tax bill, not an extra tax, but they tie up cash you've already earned until your return is filed and any refund is issued.
With gross payment status, that deduction drops to zero. You keep the full payment throughout the year and account for the tax yourself at the normal deadlines. For a busy subcontractor, that's a significant cashflow improvement, allowing you to take on the next job and not having waiting months for HMRC to hand your own money back.
It's worth being clear on one point: gross payment status is a cash-flow benefit, not a tax saving. You still owe exactly the same tax at the end of the year. What changes is when you pay it and who holds the money in the meantime.
Do you qualify? The three HMRC tests
HMRC applies three tests to every application. You must pass all three.
1. The business test
Your business must carry out construction operations (or supply labour for construction work) in the UK, and it must run its finances through a UK bank account held in the business's name. This test exists to confirm the business is genuine and trading in the UK, rather than a shell.
2. The turnover test
HMRC looks at your net construction turnover over the previous 12 months — that's your income from construction work, excluding VAT and the cost of materials. The thresholds are:
Business type | Turnover threshold (net of VAT and materials) |
Sole trader | £30,000 |
Partnership or company | £30,000 per partner or director |
Alternative test (any structure) | £100,000 for the whole business |
The alternative £100,000 test is useful for one-director limited companies where the single director doesn't personally generate £30,000 of net turnover but the company as a whole clears £100,000. This threshold was reduced from £200,000 on 6 April 2016.
Net turnover is your gross income minus materials minus VAT — you'll need to get the figure from your accounts, not from your invoices, so consult a construction-industry specialist accountant.
3. The compliance test
HMRC checks that, in the 12 months before your application, you filed and paid everything on time — Self Assessment, Corporation Tax, PAYE, CIS returns, and now VAT. A single late Self Assessment return or one late PAYE payment can be enough to fail. HMRC pulls this record from its own systems, so there's nothing to submit, but there's also nowhere to hide a slip.
Minor errors and genuine "reasonable excuse" cases are usually disregarded, and a Time to Pay arrangement won't break the test as long as you keep to the instalments. But most applications that fail, fail on compliance, so ensure your accountant always files your returns on time.
What changed in April 2024
From 6 April 2024, HMRC strengthened the compliance test in two important ways. First, VAT compliance is now part of the test — late or missing VAT returns can cost you gross payment status if you're VAT-registered (if you're not registered for VAT, this simply doesn't apply to you). Second, HMRC can now cancel gross payment status immediately where there's serious non-compliance or suspected tax fraud, rather than waiting for a routine review. The status is now harder to keep than it was before 2024, and VAT discipline matters as much as your other returns.
How to apply for CIS gross payment status
The application runs through HMRC and takes a handful of steps:
Register for CIS if you haven't already. Gross payment status is an upgrade on your subcontractor registration, so you need to be registered as a CIS subcontractor before (or at the same time as) applying.
Check your last 12 months. Confirm your net construction turnover clears the threshold and that every return and payment in the previous year was on time — including VAT if you're registered.
Apply online through your Government Gateway account. Sole traders can apply online or on form CIS302; companies apply as part of registration on form CIS305. The online route pre-fills your details from your Government Gateway login.
Wait for HMRC's review. HMRC runs a back-office check against the three tests. A decision typically arrives within around eight weeks, though the timeline varies with how busy HMRC is and whether they query anything.
If approved, your status updates on HMRC's verification system, and any contractor who verifies you from that date onwards is told to apply a 0% deduction rate.
If refused, you can request an internal review within 30 days and, if still refused, appeal to the First-tier Tribunal. You can usually reapply after 12 months of clean compliance.
Keeping your status once you have it
Gross payment status isn't permanent. HMRC reviews every holder, usually around the start of the tax year, and can withdraw the status if you stop meeting the tests. If that happens, you're given written notice, contractors receive 35 days' notice to switch you back to deductions, and you revert to the 20% rate. So get a good accountant and file and pay everything on time, every time — CIS, PAYE, VAT, and your annual return. Set deadline reminders and treat punctuality as part of the job.
Frequently Asked Questions
Do I need to be VAT-registered to apply for gross payment status? No. VAT registration is separate from CIS, and many sole-trader subcontractors stay below the VAT threshold and never register. If you are VAT-registered, however, your VAT compliance has counted towards the gross payment status test since 6 April 2024, so late VAT returns can put your status at risk.
How long does a gross payment status application take? HMRC's decision usually arrives in around eight weeks, though it can be quicker or slower depending on HMRC's workload and whether a caseworker queries anything. Most of that time is the compliance check running behind the scenes, so a clean 12-month record is the best way to keep things moving.
What's the difference between net and gross payment status under CIS? Net payment status means contractors deduct tax before paying you — 20% for registered subcontractors. Gross payment status means contractors pay you in full with no deduction, and you settle the tax yourself through your annual return. Both pay the same tax overall; only the timing and cash flow differ.
Can a new limited company get gross payment status straight away? Usually not. The turnover test looks at 12 consecutive months of trading, so a newly incorporated company often fails simply because it hasn't traded long enough. It's normally worth waiting until you have a full year of clean accounts and compliance before applying.
What happens if HMRC removes my gross payment status? You'll get written notice, your contractors are given 35 days to start deducting again, and you drop back to the 20% CIS rate. You can request a review within 30 days if you think the decision is wrong. Otherwise, resolve the compliance issue that caused it and reapply once you've built 12 months of clean filing.
Want the cashflow benefits of Gross Status?
Get in touch and we'll make the application on your behalf, or if you aren't yet eligible, we'll set you up to ensure that once you do apply, you're application succeeds. Talk to the SiteLedger team or call 01706 595 370 today.
Written by the SiteLedger team — construction-specialist accountants. Last reviewed: July 2026. Figures apply to the 2026/27 UK tax year. This is general guidance, not personal tax advice; your position depends on your circumstances, so speak to us about your specific business.