What is gross payment status under the construction industry scheme?

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## Gross Payment Status under the Construction Industry Scheme

### What the law says

The Construction Industry Scheme (CIS) is established under Chapter 3 of Part 3 of the Finance Act 2004 (FA 2004). Under the scheme, certain payments under construction contracts must be made either under deduction of tax or — where a subcontractor holds **gross payment status** — without any such deduction.

**Definition:** "References to registration for gross payment are to registration under section 63(2)" of FA 2004. In other words, gross payment status is the registration status that entitles a subcontractor to receive contract payments in full, without the contractor deducting tax at source.

**How it is obtained:** Under FA 2004 s.63, if HMRC are satisfied that the applicant has provided the required documents, records and information, and that the requirements of s.64 are met, HMRC **must** register the individual or company for gross payment. In any other case, the applicant is registered for payment under deduction.

**Requirements (s.64):** Registration for gross payment requires satisfying conditions set out in Schedule 11 to FA 2004, which include three tests:
- A **turnover test**
- A **business test**
- A **compliance test**

**Cancellation (s.66):** HMRC may cancel gross payment status where:
- A registered person would fail to meet the registration requirements if applying at that time (FA04/s.66(1)(a));
- An incorrect return or incorrect information is provided in connection with any obligations under the scheme (FA04/s.66(1)(b)); or
- There is a failure to comply with any obligations arising under the scheme (FA04/s.66(1)(c)).

Cancellation may take effect **immediately** where HMRC has reasonable grounds to suspect the subcontractor registered using false information, fraudulently made an incorrect return, or knowingly failed to comply with an obligation.

Where gross payment status is cancelled under s.66(1), the subcontractor **must** be registered for payment under deduction instead.

A person whose gross payment status is cancelled **cannot re-apply for one year** after the cancellation takes effect.

**Appeals (s.67):** A person aggrieved by the refusal or cancellation of gross payment status may appeal by notice to HMRC within 30 days.

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### HMRC guidance / practice

**What gross payment status means in practice:** A subcontractor holding gross payment status is paid in full by the contractor — i.e. without any CIS deduction. By contrast, subcontractors without gross payment status are paid **under deduction**, currently at 20% (for "matched" subcontractors) or 30% (for "unmatched" subcontractors).

**How to apply:** Applications for gross payment status can be made online via GOV.UK or by completing paper forms (form CIS302 for sole traders, CIS304 for partners/trusts, CIS305 for companies). All applicants are initially granted **net payment status**; gross payment status is only confirmed after the successful outcome of the **turnover test, business test and compliance test**.

**Ongoing review:** If gross payment status is granted, the subcontractor is subject to an **annual compliance test** (known as the "Scheduled" or "Ongoing" review) to ensure they continue to meet their obligations.

**Refusal:** Where an application is refused (e.g. for failing the turnover test), the subcontractor is assigned **net payment status** and may appeal in writing within 30 days. At any appeal hearing, the grounds for refusal are not limited to the specific test failed.

**Delegation:** An officer of HMRC may, on behalf of the Commissioners, register subcontractors, decide who must satisfy the qualifying conditions, and cancel registrations for gross payment.

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