How do I apply for gross payment status? A step by step guide for subcontractors
If you are a subcontractor working under the Construction Industry Scheme, 20% of every labour payment you invoice is taken off before it reaches your bank. On a £250,000 year that is £50,000 sitting with HMRC instead of funding your wages, your materials and your next job. So how do you apply for gross payment status, and what does HMRC actually check before it says yes?
What is gross payment status worth to you?
Gross payment status means contractors pay you in full, with no deduction. You still pay exactly the same tax at the end of the year. The difference is that you hold the cash in the meantime rather than HMRC.
Example. Bramhall Groundworks Ltd invoices £320,000 of labour in a year, spread evenly. Under standard 20% deductions, £64,000 leaves the business across the year and comes back after the tax year ends, and only once every return is filed. With gross payment status that £64,000 stays in the company throughout. For a business running a £40,000 overdraft at 9%, that alone is worth roughly £3,600 a year in interest, before you count the jobs you can take on because you can fund the materials.
Do you qualify?
There are four hurdles, and you have to clear all of them.
The business test. Your business carries out construction work, or supplies labour for it, in the UK.
The bank account test. The business runs through a bank account.
The turnover test. Ignoring VAT and the cost of materials, your turnover in the last 12 months must be at least:
- £30,000 if you are a sole trader
- £30,000 for each partner, or £100,000 for the partnership as a whole
- £30,000 for each director, or £100,000 for the company as a whole
The compliance test. You have filed and paid on time over the previous 12 months.
What does the compliance test really cover?
This is where most applications come unstuck, and it caught a lot of businesses out in 2024.
Since 6 April 2024, VAT compliance forms part of the test. It is no longer just about CIS returns and PAYE. If you are VAT registered, HMRC looks at whether your VAT returns went in on time and whether the liabilities were paid.
There are tolerances. HMRC will overlook up to three CIS returns filed up to 28 days late, up to three VAT returns up to 28 days late, and three late payments of £100 or more where they were no more than 14 days late. Anything under £100 is ignored.
Note. For businesses that already held gross payment status on 6 April 2024, VAT failures before that date are disregarded. The clock started fresh.
How do you actually apply?
Apply online through HMRC’s CIS service using your Government Gateway credentials, or by post using the form for your structure:
- Sole trader: form CIS302
- Partnership: form CIS304
- Limited company: form CIS305
A company application asks for the company UTR, current turnover, bank details, and the name, address, UTR and National Insurance number of every director and person with significant control. HMRC will want evidence of the turnover figure, so have bank statements, payment and deduction statements, invoices and contracts ready rather than hunting for them after HMRC asks.
Tip. If your turnover is close to the threshold, apply on the strength of a 12 month period that clearly clears it rather than one that just scrapes over. A refusal on the turnover test does not bar you from applying again, but it wastes months.
How do you keep it once you have it?
Gross payment status is not granted once and forgotten. HMRC runs an automatic review, the Tax Treatment Qualification Test, once in every 12 month period. The date is selected at random and HMRC will not tell you when it is coming. A one off review can also be triggered by a compliance failure or an insolvency event elsewhere in the group.
Fail it and HMRC issues form CIS308. You lose gross payment status 90 days later, and you have 30 days to appeal. If you do not appeal by day 55, every contractor who paid or verified you in the previous two years is told your status has changed.
Warning! Two things changed for 2026/27 and both raise the stakes. From April 2026, nil CIS returns are compulsory again, so a month with no subcontractor payments still needs a return unless you have filed an inactivity request in advance. And where HMRC cancels gross payment status because a business knew or should have known payments were connected with fraudulent evasion of tax, the bar on reapplying is now five years, not one.
What should you do next?
Check your last 12 months of filing and payment history before you apply, not after. Pull your VAT account, your CIS returns and your PAYE position and look at them the way an Inspector would.
That is the part most firms skip. We do not, because we have sat on the other side of it. Our team includes a Chartered Tax Adviser with direct experience working inside HMRC, so we know which failures HMRC waves through and which ones end an application. We would rather fix a pattern of late filings first and apply in three months with a clean record than apply now and spend a year under standard deductions.
If you want to know where you stand, talk to a Chartered Tax Adviser rather than an adviser who only files the form. You can also read more about how we support contractors and subcontractors on our Construction Industry Scheme page, and see how this played out for a real client in our tax saving case studies.