CIS Gross Payment Status: The Turnover Test Explained

CIS Gross Payment Status: The Turnover Test Explained

Under the Construction Industry Scheme, contractors must normally deduct tax from payments to subcontractors: 20% for registered subcontractors, 30% for unregistered ones. Gross payment status is the exception that changes everything. It lets a subcontractor be paid in full, with no deductions, which transforms cashflow overnight. But HMRC does not hand it out lightly. The centrepiece of the application is the turnover test, and this is where most applications succeed or fail.

What gross payment status actually gives you

With gross payment status, the contractor pays your invoice in full and you account for the tax through your tax return. The difference between 20% deducted at source and full payment transforms working capital: materials and wages get paid on time, and you stop lending HMRC your money interest-free until the year end.

The status applies to the business, not to individual contracts, and it covers all your CIS work. Once granted, it stays in place as long as you keep meeting the conditions.

The three tests: business, turnover, compliance

HMRC applies three tests. First, the business test: you must be carrying on a construction business in the UK, through a bank account, with proper business records. Second, the turnover test: your construction turnover, net of materials, must meet a minimum threshold. Third, the compliance test: your tax affairs must be up to date, with returns filed and payments made on time.

The business test and compliance test are largely about being a proper, up-to-date business. The turnover test is the one that needs working through with actual numbers, so let us do that properly.

The turnover test in detail

Your net construction turnover, meaning turnover from construction work excluding VAT and the cost of materials, must be at least 30,000 pounds in the 12 months before the application. That is the headline figure for a sole trader. For partnerships and companies, the threshold is 30,000 pounds multiplied by the number of partners or relevant directors and shareholders, subject to a cap.

A groundworker invoicing 60,000 pounds a year but spending 25,000 on materials has net turnover of 35,000 pounds and passes. A shopfitter invoicing 50,000 with 25,000 in materials has net turnover of 25,000 and fails. Do the materials adjustment before you apply, not after HMRC tells you the answer.

The 12-month window

The 12 months end with the date of the application, and HMRC will want evidence: accounts, invoices, and bank statements supporting your turnover figure. If your trade is seasonal, time the application for when the trailing 12 months look strongest; a well-timed application is simply good preparation.

If you are close to the threshold, gather your evidence carefully rather than hoping HMRC will be generous. A rejected application costs you time and leaves you on deductions for longer, so apply when the numbers are solid, not when they are borderline and optimistic.

The compliance test: where good businesses fail

Surprisingly, the compliance test sinks more applications than the turnover test. HMRC looks at whether your tax returns have been filed on time and your tax paid on time, typically over the previous three years. A single late return or a pattern of late payments can be enough to fail. It does not matter that the business is profitable and growing; compliance history is compliance history.

Before applying, check your record in your Government Gateway account and confirm every return is filed and every liability is settled. If there are blemishes, wait until you have a clean run of compliance behind you. There is limited discretion here, so do not apply hoping a late payment will be overlooked.

Applying and what happens next

Applications are made online through the Government Gateway or by post. You will need your UTR, National Insurance number, business details, and the turnover evidence. HMRC aims to decide within a reasonable timeframe, but plan for several weeks. During that time, contractors continue to deduct at the standard rates; the status is not backdated.

If you are refused, HMRC will tell you which test you failed. Address the specific failure before reapplying: build the turnover, clean up the compliance record, or sort out the business evidence.

Keeping the status once you have it

Gross payment status is not a lifetime award. HMRC runs annual compliance reviews, and the status can be withdrawn if your tax compliance slips. The most common reason for withdrawal is the same as the most common reason for refusal: late returns and late payments.

Treat the compliance test as an ongoing standard, not a one-time hurdle. File on time, pay on time, keep the records clean, and the status looks after itself.

Worth the effort

For most established subcontractors, gross payment status is one of the highest-value administrative wins available: a single successful application permanently improves cashflow on every CIS job. Run the materials adjustment, check your compliance history, time the application well, and apply with confidence.

If CIS administration, from verification to deductions to gross payment applications, is eating into time you should be spending on site, consider getting it handled by specialists. Finex Outsourcing provides tax compliance support for UK construction businesses, including CIS processes managed properly from end to end. Either way, do the turnover maths before you apply, because the numbers decide the outcome.

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