What gross payment status actually is
Gross payment status (GPS) is the top tier of registration under the Construction Industry Scheme. A subcontractor who holds it is paid the full value of every invoice with no CIS deduction taken at source, a rate of 0%, and settles the tax due on that income later through their own Self Assessment or Corporation Tax return.
To see why that matters, line GPS up against the two other CIS positions. Under CIS a contractor must deduct money from a subcontractor's payment and pass it to HMRC as an advance against the subcontractor's eventual tax and National Insurance. For 2026/27 there are three rates, and the rate that applies depends on the subcontractor's registration status.
| Status | CIS deduction rate | Effect on the subcontractor |
|---|---|---|
| Gross payment status (GPS) | 0% | Paid in full; settles tax at year end |
| Registered subcontractor | 20% | 20% of the labour element withheld each payment |
| Unregistered subcontractor | 30% | 30% of the labour element withheld each payment |
One detail in that table is frequently misread, so it is worth stating plainly. CIS deductions apply to the labour element only. The cost of materials a subcontractor buys for the job is excluded from the deduction base. So on a £1,000 invoice made up of £600 labour and £400 materials, the 20% (or 30%) is applied to the £600 labour, not the full £1,000. GPS removes even that labour deduction, because the rate is 0% across the board.
The tax is not avoided. With the 20% rate, HMRC effectively collects on account every month, and because that 20% is taken before any expenses or personal allowance are accounted for, most registered subcontractors overpay across the year and are owed a refund. A GPS holder receives the cash gross instead and is responsible for budgeting and paying the whole liability at the year end. GPS therefore changes when and how the tax is collected, not whether it is due. If you want the full mechanics of how the scheme deducts, verifies and reports, our guide to what the Construction Industry Scheme is covers the ground in detail.
Why GPS is worth having: the cash-flow case
The whole value of GPS is cash flow. A subcontractor on the 20% rate has a fifth of their labour income withheld at source month after month, then waits for the year end to reclaim any overpayment. For a sole trader that reclaim comes through the Self Assessment return after 5 April; for a limited company it can be reclaimed in real time during the year via the Employer Payment Summary, but it is still money that has had to be tracked, offset and chased. A GPS holder simply keeps the money in the business throughout.
The scale of that becomes obvious at higher turnover. Consider a contractor turning over £500,000 a year. Under the 20% rate, roughly £100,000 a year is deducted at source and held by HMRC until it is reclaimed. With GPS, that £100,000 stays in the business as working capital, funding payroll, materials and the next stage of the pipeline rather than sitting with HMRC. For a business that runs on thin margins and a long cash cycle, that is the difference between comfortable trading and a permanent squeeze.
| £500,000 annual turnover | Without GPS (20% rate) | With GPS (0% rate) |
|---|---|---|
| Deducted at source over the year | ~£100,000 | £0 |
| Cash available to the business in-year | Reduced by ~£100,000 | Full turnover retained |
| How tax is settled | Collected monthly, reclaimed at year end | Paid via SA or CT after year end |
That figure is illustrative and assumes the labour element makes up the bulk of turnover, but the direction is the point: the higher your turnover, the more GPS is worth, and the more painful losing it becomes. Keeping GPS is not an administrative nicety. It is a six-figure working-capital question for a sizeable subcontractor.
The three qualifying tests
To hold GPS a subcontractor must pass three tests, and all three must be met. HMRC assesses them together against its records. Failing any single one is enough for the application to be refused.
1. The business test
The applicant must carry out construction work, or provide labour for construction work, in the UK, and must run the business through a bank account. This is a straightforward test for an established trade. The bank account requirement matters because it is part of how HMRC and contractors verify that payments are going to a genuine business, which connects directly to the due-diligence duty discussed further down.
2. The turnover test
Your net CIS turnover over the last 12 months must reach the relevant threshold for your entity type. "Net" turnover excludes VAT and excludes the cost of materials bought for jobs, so it is the labour and construction-services element only. This mirrors the labour-only deduction base above, which keeps the figure consistent across the scheme.
| Entity type | Net annual CIS turnover required |
|---|---|
| Sole trader | £30,000 |
| Partnership | £30,000 per partner OR £100,000 total |
| Limited company | £30,000 per director OR £100,000 total |
| Closely controlled company (5 or fewer controllers) | £30,000 per controller |
Two practical points follow from the table. First, the "per partner / per director" route and the "£100,000 total" route are alternatives, and you pass on whichever you reach first, so a three-director company clears the test at £90,000 (three times £30,000) without needing to hit £100,000. Second, because the test looks at net turnover after stripping out VAT and materials, a business with a high materials spend needs more gross turnover than the headline figure suggests to clear the threshold on labour alone.
3. The compliance test
All your tax obligations must have been met on time for the past 12 months. That means no late Self Assessment returns, no overdue tax bills, and no PAYE defaults. HMRC is checking that you are a reliable filer and payer before it lets you take payments gross and self-account for the tax. In practice the compliance test is where most applications come unstuck, because a single late return or missed payment in the preceding year can sink an otherwise strong application. The fix is unglamorous: get every filing and payment current and keep it that way for a clean 12-month run-up before you apply.
How to apply for gross payment status
You can apply for GPS when you first register for CIS as a subcontractor, or at any later point once you can demonstrate the relevant turnover over the preceding 12 months. The mechanics are not the hard part; the preparation is. The steps below are the order we work through with clients.
- Confirm your entity type and threshold. Identify whether you are a sole trader, partnership, limited company or closely controlled company, and work out which turnover figure you need from the table above.
- Evidence the net turnover. Pull together 12 months of CIS-relevant construction income, stripping out VAT and the cost of materials, and check it clears the threshold comfortably rather than just scraping over.
- Clean the compliance record. File any outstanding Self Assessment returns, clear any overdue tax, and resolve any PAYE defaults. A 12-month clean run is what the compliance test is looking for.
- Confirm the business test details. Make sure the work is UK construction work and that the business runs through a bank account in the correct name.
- Apply to HMRC. Submit the application alongside or after CIS registration. HMRC reviews the three tests against its records and usually responds within a few weeks, longer where the compliance history or turnover needs checking.
If you have not yet registered for CIS at all, ordinary registration is the prior step. GPS sits one tier above it: ordinary registration moves you from the 30% rate to 20%, and GPS moves you from 20% to 0%.
The April 2026 anti-fraud regime: the rules most guides miss
This is the part of GPS that changed materially in 2026 and that most existing guidance has not caught up with. Finance Act 2026 introduced a tougher GPS regime in force from 6 April 2026. Qualifying is no longer the end of the story. Keeping GPS now turns on ongoing conduct, and the consequences of getting it wrong reach further than before, including to individual directors. These provisions are enacted law: Finance Act 2026 received Royal Assent on 18 March 2026, and the statutory anti-fraud changes (sections 62A and 62B and the section 66 amendments) took effect on 6 April 2026 directly under FA 2026 section 222. SI 2026/289 separately commences the regulation-level changes, the reinstated nil return and the Regulation 24ZA public sector exemption.
Immediate revocation on the "knew or should have known" standard
HMRC can now remove GPS immediately, with no advance notice, where a contractor knew or should have known about fraudulent connections in the supply chain. The crucial words are "should have known". That standard means a failure to carry out due diligence is itself sufficient for revocation. HMRC does not have to prove you intended to be involved in fraud, or even that you actually knew about it. If you paid a subcontractor you could and should have checked, and did not, you can fall foul of the test. This is a significant shift from a regime where revocation generally followed a clear compliance failure.
The five-year reapplication ban
Where GPS is removed on fraud grounds, the subcontractor now faces a 5-year ban on reapplication, up from the previous 1 year. The cash-flow arithmetic from earlier makes the severity obvious. A business turning over £500,000 a year loses roughly £100,000 a year to deductions at source once GPS is gone, and under the new ban it could be exposed to that for five years rather than one. Multiplied out, that is a working-capital hit that can threaten the survival of the business, not merely inconvenience it.
The knowledge-based penalties under sections 62A and 62B
Finance Act 2026 also reaches the act of paying or reporting while turning a blind eye. Under new FA 2004 section 62A, a person who makes a payment under a construction contract knowing, or having reason to know, that a connected party deliberately failed to comply with CIS is liable to a penalty of 20% of the payment. Section 62B deals with the parallel case of a return made with that knowledge, and the liability there is different: it is an amount equal to the sum the return treats as deducted and paid, in other words 100% of the sum falsely returned, with no percentage reduction. So section 62A takes a fifth of the payment, while section 62B claws back the whole of the sum a false return pretends was accounted for. The penalty falls on the payer or return-maker, usually the company; there is no special director rate and no 30% figure in these sections. What removes the corporate firewall is the separate, long-standing officer-liability rules, under which HMRC can recover part or all of a company's penalty from the responsible officers personally where the failure was deliberate. For limited-company subcontractors this raises the stakes of supply-chain hygiene from a company-level compliance matter to a personal one.
The due-diligence duty in practice
Because the "should have known" standard is met simply by the absence of reasonable checks, the practical answer is to carry out, and be able to evidence, due diligence before paying a subcontractor. Three steps are central:
- Re-verify the CIS status of each subcontractor with HMRC before payment, so you are applying the correct deduction rate and confirming the subcontractor is genuine.
- Run a Companies House legitimacy check on the business you are paying, confirming it exists, is active and matches who you contracted with.
- Carry out bank account name verification, so the payee account belongs to the entity you contracted with and not a redirected or substituted party.
Verification was always the step that set the deduction rate. From 6 April 2026 it doubles as a fraud-risk control that protects your GPS, because a documented verification trail is your evidence that you did not "have reason to know" about a problem. We cover the mechanics of that first step in our guide to verifying subcontractors under CIS, which feeds directly into the due-diligence duty here.
Keeping GPS: the annual review
GPS is not granted once and forgotten. HMRC reviews every holder, at least annually, against the same compliance test that applied at the point of application: have all tax obligations been met on time over the preceding period? A holder who slips into late returns, overdue tax or PAYE defaults can have GPS withdrawn at the review, dropping them back to the 20% rate and the cash-flow cost that comes with it.
Layered on top of that routine review is the April 2026 anti-fraud power. Even a holder with a perfect filing and payment record can now lose GPS immediately if HMRC concludes they knew or should have known about fraud in the supply chain. So keeping GPS is really two disciplines running side by side: stay current on your own filing and payments to pass the annual compliance review, and run consistent due diligence on every subcontractor you pay to stay clear of the immediate-revocation power. Neither alone is enough.
For a sizeable subcontractor, the sensible posture is to treat GPS maintenance as a standing process rather than a once-a-year scramble: a clean compliance calendar, and a documented verification and check on every new subcontractor before the first payment goes out. That is precisely the work our gross payment status application and maintenance service is built around, because the value of GPS is too large, and the new revocation power too sharp, to leave to chance.
Where this fits in your wider CIS position
GPS is one piece of a larger CIS picture. Most subcontractors start on the 20% rate, overpay across the year because deductions are taken on labour before expenses and allowances, and are owed a refund as a result. That refund is the natural front door for most subcontractors, and our guide to claiming a CIS tax refund explains how it works and how long it takes. GPS is the next step up for an established business: rather than overpaying and reclaiming, you take the cash gross and self-account.
The choice between the two is not either/or but a question of where your business is. A newer or smaller subcontractor benefits from the refund route and ongoing compliance support. An established business clearing the turnover threshold, with a clean compliance record and a handle on its own tax budgeting, is better served by GPS, provided it can also sustain the due-diligence discipline the April 2026 rules now demand. Getting that judgement right, and then securing and protecting the status, is exactly the kind of question to put to a specialist construction accountant rather than to leave to a form.
The bottom line
Gross payment status is the most valuable position a subcontractor can hold under CIS, because it converts a 20% deduction at source into a 0% rate and keeps the cash in the business all year. Qualifying means passing all three tests, the business test, the turnover test on the £30,000 / per-partner / per-director / £100,000 thresholds, and the compliance test on a clean 12-month record. Keeping it, from 6 April 2026, means more than staying current with HMRC: it means running real due diligence on your supply chain, because the new "should have known" standard can strip GPS away immediately, a 5-year ban can follow, and the knowledge-based penalties under sections 62A and 62B (20% of the payment under section 62A, 100% of the sum a false return treats as paid under section 62B) can be recovered from directors personally through the officer-liability rules.
Before you apply, run your numbers through our gross payment status eligibility checker. It walks through the turnover, business and compliance tests and tells you whether an application is worth making this year.
If you want help working out whether you qualify, getting the application right, or building the maintenance routine that keeps GPS safe under the new regime, our team handles GPS applications and ongoing maintenance every week. You can read more on our gross payment status service page or see the full range on our services page.