What Are the Benefits and Risks of Gross Payment Status

Gross payment status allows you to be paid in full by contractors without any CIS tax deductions being taken at source. On the surface this feels like the ideal position, because you control your cashflow, not HMRC. But the conditions for getting and keeping the status are strict, and losing it can be disruptive and expensive. Understanding both sides helps you decide whether gross payment status is right for your business long term.

Understanding Gross Payment Status

Under standard CIS rules, contractors must deduct 20 percent or 30 percent tax from payments made to subcontractors. This deduction is paid directly to HMRC and acts as a prepayment of the subcontractor’s income tax or Corporation Tax.

Gross payment status changes this. Instead of having deductions taken from your payments, you receive everything in full. You are trusted to pay your own tax through Self Assessment or Corporation Tax without HMRC collecting anything in advance.

To qualify, you must pass HMRC’s tests for tax compliance, business structure and turnover. HMRC wants reassurance that your business is established, has a good compliance history and manages its tax obligations properly.

The Benefits of Gross Payment Status

From a subcontractor’s point of view, gross payment status can feel incredibly valuable, especially if you are growing your business or managing tight margins.

The most obvious benefit is better cashflow. Instead of losing 20 percent of every invoice to CIS deductions, you receive the full amount upfront. This means you have more working capital to buy materials, pay staff, invest in equipment and fund larger jobs. For many subcontractors, steady cashflow is the difference between growth and struggle.

Another benefit is controlling your own tax payments. Rather than having tax deducted in unpredictable amounts throughout the year, you manage your tax bill through normal returns. This gives you the chance to plan, budget and make sure you have enough put aside. Some subcontractors prefer the discipline of CIS deductions, but in my opinion experienced businesses benefit more from being in charge of their own tax.

Gross payment status can also improve how contractors view you. Many contractors prefer working with subcontractors who have the status because it reduces admin, avoids deduction disputes and signals that your business is established and compliant.

Finally, contractors using subcontractors with gross payment status avoid having to pass CIS deductions on to HMRC, which simplifies their side of the process.

The Risks of Gross Payment Status

Although gross payment status has clear advantages, it carries important risks that subcontractors must consider.

The biggest risk is that you are entirely responsible for paying your own tax in full at the end of the year. Without CIS deductions acting as a buffer, it is easy to underestimate your tax bill and face a large liability when Self Assessment or Corporation Tax becomes due. I have seen many subcontractors enjoy the benefits of gross payments only to face cashflow pressure at the tax deadline because they did not consistently put money aside.

Another risk is that HMRC can withdraw your gross payment status if you fail its ongoing compliance checks. To keep the status you must:

• file your tax returns on time

• pay tax on time

• keep proper business records

• remain within the rules of CIS

Late payments or missing returns can trigger a review, and HMRC does not hesitate to remove the status if your compliance slips. Once removed, you must accept 20 percent or 30 percent deductions on all incoming payments until you can reapply. This can be a harsh adjustment if your business relies on full payments to manage cashflow.

Gross payment status also increases the level of scrutiny from HMRC. They expect businesses with the status to behave responsibly, and they monitor your tax behaviour more closely than standard subcontractors. In my opinion this scrutiny is fair, but it does mean that record keeping becomes even more important.

A further risk is psychological. Some subcontractors view the full payment as money available to spend, forgetting that a large portion of it is still owed to HMRC at year end. Without good bookkeeping and budgeting, gross payment status can actually create financial problems rather than solve them.

What Happens If You Lose Gross Payment Status

Losing your status means contractors must begin deducting CIS tax from your payments again. If your business is used to receiving full payments, this sudden reduction can be a shock. It may affect your ability to buy materials or cover day to day costs.

Losing the status also raises concerns for contractors who rely on you, as CIS deductions complicate their admin. Some contractors mistakenly believe subcontractors who lose gross status are financially unstable, which can affect your working relationships.

You can appeal if you believe HMRC removed the status unfairly, but appeals succeed only when you can prove that any compliance failures were outside your control. If the removal stands, you can reapply after a set period, but only when you have re established a clean compliance record.

In my opinion losing gross payment status is more than a minor inconvenience. It disrupts cashflow, impacts reputation and creates extra work for both you and your contractors.

Why Good Accountancy Support Makes a Difference

An accountant helps you manage gross payment status in two important ways. First, they make sure you stay compliant by filing your returns, keeping your books accurate and budgeting properly for tax. This protects your status and prevents HMRC from withdrawing it.

Second, an accountant helps you plan for your year end tax bill. When every payment arrives gross, it is vital to ringfence the portion that will eventually go to HMRC. A good accountant will give you clear tax estimates throughout the year so you are never caught off guard.

In my experience subcontractors with gross payment status feel more secure when an accountant monitors their numbers. The risk of unexpectedly large tax bills or compliance slip ups is much lower.

Conclusion

Gross payment status offers valuable benefits, including better cashflow, improved professional credibility and full control over your tax payments. However it also brings real risks, particularly if you struggle with record keeping or budgeting. If you fail to stay compliant, HMRC can withdraw the status, and the financial impact can be significant.

In my opinion gross payment status is a powerful tool for subcontractors who manage their finances well and want flexibility to grow. For those who prefer the safety net of CIS deductions, it may feel riskier. With the right accountant behind you, the benefits tend to outweigh the risks.