CIS Accountant in Essex: How to Protect Your Gross Payment Status After the April 2026 Changes

Gross payment status is one of the most valuable things a construction business can hold, and it is easier to lose than it used to be. The rules were tightened on 6 April 2024, when VAT was added to the compliance test, and again on 6 April 2026, when new fraud measures took effect. We regularly see construction firms in Essex and East London that assume the status is permanent once HMRC has granted it. It is not. HMRC tests it every year.

GM Professional Accountants serves clients across London and Essex, with offices in Ilford, Loughton, Old Street and Wimbledon. Our CIS accountants for contractors and subcontractors deal with gross payment status reviews as part of routine compliance work, and this guide sets out what we look at. If you run a UK construction business while living in the Gulf, our sister firm GMPA Tax explains whether British expats in Qatar still need to file a UK tax return.

Under CIS, a contractor must normally deduct 20% from a registered subcontractor’s payments and pass it to HMRC. If the subcontractor is not registered for the scheme, the deduction is 30%. With gross payment status, the contractor takes no deduction at all.

The deduction does not apply to everything on your invoice. GOV.UK confirms that contractors do not take CIS deductions from VAT, from materials that you have paid for directly, or from plant hired for the job. On a job that is mostly labour, the deduction still takes a large share of each payment out of your cash flow until it is set off or repaid.

Construction is a sector of small firms. The Department for Business and Trade’s Business Population Estimates 2025 show that construction had the largest number of small and medium sized businesses of any sector, at 885,000 or 16% of the total. For a firm of that size, receiving the full payment instead of the payment less 20% of the labour can decide whether wages and suppliers are paid on time.

Who can hold gross payment status?

To qualify, GOV.UK says you must show HMRC three things:

You must also pass the turnover test. Ignoring VAT and the cost of materials, your construction turnover for the last 12 months must be at least the amount shown below.

If you have not applied yet, our earlier guide explains how to apply for CIS gross payment status as a limited company. The rest of this guide is about keeping it once you have it.

Two sets of changes now sit on top of the original rules.

HMRC’s guidance on labour supply chains sets out what it can do under the 2026 measures:

HMRC’s factsheet on these penalties adds that company officers, including directors, can be made personally liable where their actions caused the penalty.

The government expects these powers to be used. HMRC’s policy paper, Tackling Construction Industry Scheme fraud, estimates an Exchequer impact, meaning extra tax collected, of £205 million in the 2026 to 2027 tax year. The same paper states that the measure should not affect compliant businesses that carry out the due diligence needed to make sure the firms they contract with are not involved in supply chain fraud. That sentence is the key to the whole regime. Due diligence simply means the checks you make on the people you deal with, and it is what separates a business that is protected from one that is exposed.

The 2026 package also changed nil returns and payments to public bodies. Our guide to the CIS changes from April 2026 covers those in full, so this article stays with gross payment status.

What does “knew or should have known” mean?

The phrase is not defined in the legislation. HMRC’s manual describes it as an objective test. In plain terms, HMRC does not have to prove that you took part in a fraud. It asks whether, given what was in front of you, the only reasonable explanation for the arrangement was that tax was not being paid somewhere in the chain.

For a company, HMRC’s manual says it will consider the knowledge of directors and the company secretary, of employees in any capacity, and of third parties such as agents and advisers who helped with the transactions. The manual also says that where a transaction appears too good to be true, the business should either walk away or carry out a more thorough risk assessment. A business that ignores the risk and carries on is treated as one that should have known.

What warning signs does HMRC list?

HMRC’s manual gives examples and says the list is not exhaustive:

We regularly see contractors in London and Essex approached by labour suppliers whose day rates do not add up once tax and National Insurance are allowed for. That is the moment to stop and check, not after the labour is on site.

GOV.UK states that if you have gross payment status, HMRC will review your business every year to decide if you can keep it, and that you must be on time with your tax returns and payments. For a limited company, HMRC reviews the company itself and not the individual directors or shareholders.

HMRC’s manual explains that the review is automated. It runs once in each 12 month period, at a point that varies from business to business, and it looks back over the previous 12 months. Since April 2024 it has covered VAT as well as CIS, PAYE, Self Assessment and Corporation Tax.

GOV.UK says you are allowed a small amount of late payments or returns. HMRC’s internal manual puts numbers on that. The table below summarises the compliance tolerance in HMRC’s CIS manual, which is the guidance HMRC staff work to.

Two points matter in practice. First, the tolerance runs out quickly. A business that files three VAT returns late has no margin left on VAT until those failures drop out of the 12 month window. Second, HMRC’s manual tells its staff to consider whether the business had a reasonable excuse before removing gross payment status for compliance failures. HMRC describes a reasonable excuse as something that stopped you meeting a tax obligation that you took reasonable care to meet. The facts behind a late payment are worth recording at the time, while the evidence is still to hand.

The focus on smaller firms is not accidental. HMRC’s Measuring tax gaps 2026 edition puts the tax gap at 6.4% of theoretical liabilities, or £59.2 billion, for the 2024 to 2025 tax year, and reports that small businesses accounted for 62% of it.

Late returns also carry their own charges. A monthly CIS return is due by the 19th of every month following the last tax month, and GOV.UK lists a £100 penalty for a return that is 1 day late. Our guide to CIS penalties for Essex and East London construction firms covers the full schedule.

The cost is cash flow, not extra tax. When gross payment status is cancelled after a failed review, the subcontractor is registered for payment under deduction instead. Contractors then deduct 20% from the labour element of every payment.

The tax is not lost. A limited company sets CIS deductions against its own PAYE, National Insurance and CIS liabilities through payroll, and claims any balance after the tax year ends. A sole trader gets credit through the Self Assessment return. In both cases the money comes back well after the wage bill and supplier invoices fall due.

To see what a gap like that would do to your own month by month position, our guide to a construction cash flow forecast for UK contractors shows how to model it before it happens.

Where HMRC cancels under the fraud rules, the position is harder. The wait to reapply is five years, HMRC decides whether to register the business for payment under deduction at all, and the tax determination and penalty described above come on top.

Protection comes down to routine. These are the steps we put in place for construction clients who hold gross payment status.

We regularly see gross payment status put at risk by small, repeated lateness, such as a PAYE payment that goes a few days late several months running. Each one looks minor. Counted together across 12 months, they fail the test.

The 2026 rules turn on what you knew or should have known, so the record of your checks is what protects you. A sensible file for each subcontractor or labour supplier holds the following.

None of this is heavy. It is a one page checklist completed at the start and refreshed at set intervals. What matters is that it exists before HMRC asks for it, and that someone acts when an answer looks wrong.

Subcontractors face the same test from the other direction. HMRC’s guidance says the new rules apply where a return is made containing a CIS credit and the person making the return knew, or should have known, that the credit had not been deducted. Claim only the deductions shown on the statements your contractors have given you.

There are two different routes, and the timescales are not the same.

What happens after a failed annual review?

GOV.UK describes the process in four stages:

Use the first letter well. Check each failure HMRC lists against your own records and bank statements. We regularly find that a payment shown as late was in fact paid on time but allocated to the wrong period or reference, and that can be corrected. Where a failure is real, set out any reasonable excuse with evidence.

What happens after a cancellation under the fraud rules?

Here there is no 90 day period. The legislation says the cancellation has immediate effect. HMRC must give notice stating its reasons, and HMRC’s manual says an appeal must state the grounds and be given to HMRC in writing within 30 days of the cancellation. This is not a letter to deal with alone. Take advice on the day it arrives.

Yes, but not straight away, and the wait depends on why you lost it.

When the wait is over you apply again from the start. HMRC will look for a clean record over the 12 months before the new application, so the work of rebuilding your compliance history begins on the day the status is lost, not on the day you reapply.

Gross payment status sits inside a wider set of changes. These are the ones we are raising with construction clients now.

A CIS accountant does not make the test easier, but does make sure nothing is missed. Our accountants in Loughton and accountants in Ilford work with groundworkers, builders, electricians, roofers and labour providers across Essex and East London, as part of our wider accounting for construction companies. For clients with gross payment status, the work usually covers five things.

If you already hold gross payment status, the most useful step is a review of your own record before HMRC carries out its review. It is far easier to correct a misallocated payment or an overlooked return now than to argue about it within a 30 day appeal window.