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Can I Receive 100% of My Earnings as a CIS Subcontractor Without the 20% Deduction?

If you work in construction as a CIS subcontractor, you may have noticed that contractors often deduct 20% from your payments before sending the rest to you.

This can feel frustrating, especially when you have materials, fuel, tools, labour, insurance, and other business costs to pay. Many subcontractors ask the same question:

Can I receive 100% of my money as a CIS subcontractor, without the 20% deduction?

The short answer is:

Yes, theoretically — but only if HMRC approves you for Gross Payment Status.

Gross Payment Status is not automatic, and it is not available to everyone. It is a legal option, but you must meet HMRC’s conditions and stay compliant once it is granted.

This article explains how CIS deductions normally work, what Gross Payment Status means, who can apply, the conditions you must meet, the benefits, the risks, and what to consider before applying.

What Is CIS?

CIS stands for the Construction Industry Scheme.

It applies to many businesses and individuals working in the construction industry in the UK. Under CIS, contractors may have to deduct money from a subcontractor’s payment and send it to HMRC.

These deductions are not a separate tax. They are advance payments towards the subcontractor’s tax and National Insurance bill.

HMRC states that subcontractors can include sole traders, partnerships, and limited companies working for contractors under CIS. Under standard CIS rules, a registered subcontractor is usually paid under deduction, meaning the contractor deducts tax before paying the subcontractor.

How Does CIS Normally Work?

Before paying a subcontractor for construction work, the contractor normally verifies the subcontractor with HMRC.

HMRC then tells the contractor which deduction rate to apply.

The common CIS rates are:

  • 20% if the subcontractor is registered for CIS;

  • 30% if the subcontractor is not registered or cannot be verified correctly;

  • 0% if the subcontractor has Gross Payment Status.

HMRC confirms that the contractor must deduct 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% if the subcontractor has Gross Payment Status.

For example, if you invoice £2,000 for labour and you are on standard CIS deduction at 20%, the contractor may deduct £400 and pay you £1,600.

The £400 is then sent to HMRC and later taken into account against your tax position.

Why Do Subcontractors Feel the Cashflow Pressure?

The main problem with CIS deductions is cashflow.

Even though the 20% deducted is not lost, it is money you do not receive immediately.

That can create pressure when you need to pay for:

  • materials;

  • fuel;

  • tools;

  • subcontractors;

  • wages;

  • van costs;

  • insurance;

  • equipment hire;

  • bookkeeping and accounting fees;

  • personal household bills.

Many CIS subcontractors recover some or all of the deductions later, especially if they have allowable expenses. But waiting until the end of the tax year can be difficult.

This is why Gross Payment Status can be attractive: it improves cashflow by allowing you to receive the full payment from the contractor.

What Is Gross Payment Status?

Gross Payment Status means your contractor can pay you in full, without making CIS deductions from your payments.

HMRC explains that if you have Gross Payment Status, the contractor will not make deductions from your payments, and you will pay your tax and National Insurance at the end of the tax year.

In simple terms:

Standard CIS:
The contractor deducts tax before paying you.

Gross Payment Status:
The contractor pays you in full, and you are responsible for paying your own tax later.

This can be very useful for cashflow, but it also comes with more responsibility.

Does Gross Payment Status Mean I Pay Less Tax?

No.

This is one of the most important points to understand.

Gross Payment Status does not mean you pay less tax. It simply means HMRC does not collect CIS deductions in advance through the contractor.

You still need to:

  • declare your income correctly;

  • keep proper records;

  • claim only allowable expenses;

  • submit your tax returns;

  • pay tax and National Insurance on time;

  • comply with CIS, PAYE, VAT, Corporation Tax or Self Assessment rules where relevant.

Practically, Gross Payment Status means:

The money comes to you now, but the tax responsibility stays with you.

If you spend all the money and do not put funds aside for tax, you could face a large tax bill later.

Who Can Apply for Gross Payment Status?

You can apply for Gross Payment Status if you are a CIS subcontractor operating as a:

  • sole trader;

  • partnership;

  • limited company.

HMRC says you can apply online or by post, and the form you use depends on whether you are a sole trader, partnership, or limited company.

The relevant forms are:

  • CIS302 for sole traders;

  • CIS304 for partnerships;

  • CIS305 for limited companies.

HMRC confirms that CIS302 is used for sole trader subcontractors and that CIS305 is used for limited companies applying for subcontractor registration and/or Gross Payment Status.

What Conditions Must You Meet?

To obtain Gross Payment Status, you must pass HMRC’s tests.

HMRC guidance explains that applicants must pass three key tests:

  • the business test;

  • the turnover test;

  • the compliance test.

HMRC’s internal CIS guidance states that Gross Payment Status is only confirmed after the successful outcome of the turnover, business, and compliance tests.

Let’s break these down in simple terms.

1. The Business Test

HMRC needs to be satisfied that your business is genuinely operating in the UK construction industry.

In practice, this means your business should be carrying out construction work, supplying construction labour, or providing construction services in a way that falls within CIS.

You also need to show that the business is being run properly.

For example, HMRC may expect to see that:

  • the business carries out construction work in the UK;

  • the business has contracts, invoices, or evidence of trading;

  • the business is organised and active;

  • the business is administered through a bank account.

This test is designed to make sure Gross Payment Status is only granted to genuine construction businesses.

2. The Turnover Test

The turnover test checks whether your construction turnover is high enough.

For a sole trader, HMRC guidance states that the individual must show net construction turnover of at least £30,000 in the 12 months before the application.

“Net construction turnover” generally means construction turnover after excluding things such as VAT and the cost of materials.

This point matters because a subcontractor may think they meet the threshold based on total invoices, but HMRC looks at the relevant construction turnover.

Sole Trader

Usually, you need at least:

£30,000 net construction turnover in the previous 12 months.

Partnership

A partnership generally needs:

£30,000 per partner, or £100,000 total, depending on the circumstances.

Limited Company

A limited company generally needs:

£30,000 per relevant person/director, or £100,000 total, depending on the structure.

For larger businesses with several directors or relevant persons, HMRC rules can become more detailed. If the company is controlled by five people or fewer, HMRC may look at £30,000 for each relevant person in some cases.

Because the turnover test can be technical, it is important to check the figures carefully before applying.

3. The Compliance Test

The compliance test checks whether you and the business have kept up with HMRC obligations.

This is extremely important.

HMRC expects you to have a good history of compliance, including submitting returns and paying tax on time.

This can include obligations such as:

  • Self Assessment;

  • CIS returns;

  • PAYE;

  • VAT;

  • Corporation Tax;

  • tax payments;

  • filing deadlines.

From April 2024, HMRC strengthened the compliance test for Gross Payment Status, and the test includes compliance with obligations across CIS, PAYE, Income Tax Self Assessment and Corporation Tax Self Assessment.

HMRC guidance also states that the requirement for timely compliance must be applied strictly, and Gross Payment Status should only be granted where failures are within the allowed tolerance.

In simple terms:

If your returns or tax payments are late, HMRC may refuse your application or remove Gross Payment Status later.

What Are the Benefits of Gross Payment Status?

Gross Payment Status can be very useful for the right subcontractor or construction business.

1. Better Cashflow

The biggest benefit is cashflow.

Instead of receiving 80% of your labour payment after CIS deduction, you receive the full amount.

This can help with:

  • paying suppliers;

  • buying materials;

  • paying subcontractors;

  • managing wages;

  • covering vehicle and equipment costs;

  • keeping the business running smoothly.

2. More Control Over Tax Payments

You are no longer relying on contractors deducting CIS and sending it to HMRC in advance.

Instead, you manage your own tax position and pay tax at the correct time.

This can be useful if your business has high expenses and often receives a refund after the tax return is prepared.

3. Less Waiting for CIS Refunds

Many subcontractors have to wait until their Self Assessment Tax Return or company CIS recovery process is completed before recovering overpaid CIS.

Gross Payment Status can reduce this problem because the deduction is not taken from your payments in the first place.

4. Professional Image

Having Gross Payment Status can also make your business appear more established and organised.

However, it should never be treated simply as a status symbol. It is a responsibility.

What Are the Risks?

Gross Payment Status is not always the best option for everyone.

1. You Must Be Disciplined With Tax Money

If you receive 100% of your income, you need to put money aside for tax.

Otherwise, you could face a large tax bill later.

For some subcontractors, standard CIS deductions act almost like forced savings towards the tax bill. Removing that deduction can be risky if the money is not managed carefully.

2. You Can Lose Gross Payment Status

HMRC reviews compliance and can remove Gross Payment Status if the business fails to meet its obligations.

Late tax returns, late payments, CIS problems, PAYE issues or VAT issues can put your status at risk.

3. It May Not Be Worth Applying Too Early

If your turnover is not high enough, your records are not organised, or you have late filings, it may be better to fix those issues before applying.

Applying too early can lead to refusal.

4. It Does Not Remove Tax Liability

Gross Payment Status only changes how tax is collected.

It does not remove the need to pay tax.

Gross Payment Status for Self-Employed CIS Subcontractors

If you are self-employed and have Gross Payment Status, your contractor pays you without CIS deduction.

You then declare your income and expenses through your Self Assessment Tax Return.

You will still need to pay:

  • Income Tax;

  • Class 2 National Insurance, if applicable;

  • Class 4 National Insurance, if applicable;

  • Payments on Account, if applicable.

This can work well if you are organised, keep accurate records, and set aside money for tax.

However, if you are used to relying on CIS deductions to cover your tax bill, you need to be careful.

Gross Payment Status for Limited Companies

If a limited company has Gross Payment Status, contractors can pay the company without CIS deductions.

The company then declares its income and expenses as usual through the company accounts and Corporation Tax Return.

If a limited company does not have Gross Payment Status and suffers CIS deductions, those deductions are usually reclaimed through the company’s payroll scheme.

HMRC states that limited companies should claim CIS deductions back through the company’s monthly payroll scheme and should not try to claim them back through the Corporation Tax Return, as this may lead to penalties.

This is a common area where mistakes happen, so limited companies should take extra care.

What Information Should You Prepare Before Applying?

Before applying for Gross Payment Status, it is useful to prepare:

  • UTR;

  • National Insurance number, if sole trader;

  • company registration number, if limited company;

  • VAT number, if VAT registered;

  • PAYE reference, if the business has payroll;

  • business bank details;

  • details of construction turnover for the last 12 months;

  • evidence of contracts or construction work;

  • invoices and statements;

  • proof of materials costs;

  • records of tax returns and payments;

  • details of directors or partners, where relevant.

The stronger and cleaner your records are, the better.

How Do You Apply?

You can apply online or by post.

The form depends on your business type:

  • CIS302 — sole trader;

  • CIS304 — partnership;

  • CIS305 — limited company.

HMRC confirms that you can apply for Gross Payment Status by completing an online or postal form and that the form depends on whether you are a sole trader, partnership or limited company.

Before applying, make sure your turnover, business activity and compliance history are strong enough.

What Happens After You Apply?

HMRC will review your application and test whether you meet the conditions.

They may check:

  • construction turnover;

  • trading activity;

  • tax compliance;

  • filing history;

  • tax payment history;

  • business structure;

  • bank account details;

  • directors or partners.

If HMRC approves the application, contractors should be able to pay you without CIS deductions once your status is updated and verified.

If HMRC refuses the application, they should explain why. Common reasons include:

  • turnover too low;

  • poor tax compliance;

  • late returns;

  • late payments;

  • insufficient evidence of construction activity;

  • problems with the business test.

In some cases, you may be able to correct the issue and apply again later.

Should Every CIS Subcontractor Apply?

No.

Gross Payment Status can be excellent for some businesses, but it is not suitable for everyone.

It may be worth considering if:

  • you have strong cashflow management;

  • your turnover meets the HMRC threshold;

  • your tax affairs are fully up to date;

  • you keep good records;

  • you regularly suffer large CIS deductions;

  • you often recover CIS tax later;

  • you want more control over your cashflow.

It may not be suitable if:

  • you struggle to put tax money aside;

  • your records are poor;

  • you regularly miss deadlines;

  • your turnover is below the threshold;

  • you are not sure how much tax you will owe;

  • you rely on CIS deductions to reduce your final tax bill.

In many cases, it is better to first improve bookkeeping, tax planning and compliance before applying.

Common Misunderstandings

“Gross Payment Status means I do not pay tax.”

Incorrect.

You still pay tax. You simply receive the full payment first and pay the tax later.

“Anyone can get Gross Payment Status.”

Incorrect.

You must pass HMRC’s business, turnover and compliance tests.

“If I am registered for CIS, I automatically get paid gross.”

Incorrect.

Standard CIS registration usually means 20% deduction. Gross Payment Status is separate.

“Gross Payment Status is always better.”

Not always.

It is better for cashflow, but only if you manage tax properly.

“Limited companies recover CIS deductions through Corporation Tax.”

Usually incorrect.

Limited companies normally claim CIS deductions through payroll/EPS, not directly through the Corporation Tax Return.

Practical Example

Let’s say a subcontractor invoices £5,000 for labour.

Under standard CIS at 20%, the contractor may deduct £1,000 and pay £4,000 to the subcontractor.

That £1,000 is sent to HMRC and later taken into account against the subcontractor’s tax position.

If the subcontractor has Gross Payment Status, the contractor pays the full £5,000.

This improves cashflow by £1,000 immediately.

But the subcontractor must still declare the income and pay the correct tax later.

Final Thoughts

Yes, you can receive 100% of your earnings as a CIS subcontractor — but only if HMRC grants you Gross Payment Status.

It can be a powerful tool for improving cashflow, especially for organised subcontractors and construction businesses with strong records and good tax compliance.

However, it is not a way to avoid tax.

It simply means:

You receive the money now, and you take responsibility for paying the tax correctly and on time.

Before applying, you should check:

  • whether you meet the turnover test;

  • whether your tax compliance history is strong;

  • whether your records are organised;

  • whether you can manage the future tax bill;

  • whether Gross Payment Status is genuinely suitable for your business.

Need Help?

If you are a CIS subcontractor or construction business and want to check whether Gross Payment Status is suitable for you, we can help you understand the rules, review your position and prepare the correct application.

📲 Send us a message on WhatsApp: 07587 532646
🌐 www.dctaxagent.co.uk

DCTaxAgent
Accounting | Tax | Advisory

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