If you’re working in the UK construction industry, you already know that cash flow is the lifeblood of your business. Whether you’re a developer, a main contractor, or a specialist sub-bie, having money in the bank to pay for materials and wages is what keeps the lights on. That’s why Gross Payment Status (GPS) is the "holy grail" for Construction Industry Sub-Contractors (CIS).
When you have GPS, contractors pay you in full without deducting a single penny for tax. You get the whole 100% of your invoice, and you settle up with HMRC later. It’s a massive win for your bank balance.
But here’s the kicker: Gross Payment Status isn't a "set it and forget it" badge. HMRC treats it like a privilege, not a right. They run a "compliance test" every year, and if they catch you slipping up, they can snatch that status away faster than a site foreman spots a missing hard hat. Losing it means 20% of your income suddenly disappears into HMRC’s coffers before it even hits your account.
At Makes Sense Accountants, we’ve seen too many good businesses get knocked sideways by avoidable CIS blunders. To keep your cash flow protected, here are the seven biggest CIS mistakes that could kill your Gross Payment Status: and exactly how to fix them.
1. Missing the Monthly Filing Deadline (Even by a Day)
This is the most common reason GPS gets revoked. HMRC expects your monthly CIS returns to be submitted by the 19th of every month.
In the eyes of the taxman, being late is a sign that your business is disorganized or struggling. If you miss a deadline, you get an automatic £100 penalty. But for GPS holders, it’s even worse. HMRC allows a tiny bit of leeway, but a pattern of late filing: or being significantly late just once: can trigger a compliance review that results in your gross status being cancelled.
The Fix: Don't rely on your memory. Set digital reminders, use cloud accounting software that prompts you, or better yet, let us handle your CIS and accountancy. We make sure those returns are in long before the 19th hits.
2. Forgetting the "Nil Return"
A common misconception among sub-contractors is that if you didn't use any subcontractors yourself that month, you don't need to tell HMRC anything.
Wrong. If you are registered as a contractor and you have a "period of inactivity," you must still file a Nil Return. If you simply stop filing because you didn't have any CIS-taxable work that month, HMRC assumes you’ve forgotten your obligations. This counts as a missed filing and goes against your compliance record.
The Fix: Even if the work has dried up for a few weeks, file that Nil Return. It takes two minutes and keeps your record clean. If you know you won't be using subcontractors for at least six months, you can ask HMRC to mark your scheme as "inactive," but it’s often safer just to file the monthly nil.
3. Failing to Verify Your Subcontractors
As a contractor, you have a legal obligation to "verify" every new sub-contractor you hire before you pay them. This tells you whether you should pay them gross (0%), the standard rate (20%), or the higher rate (30%).
If you guess: or just take the sub-contractor’s word for it: and pay them the wrong amount, you are in breach of CIS rules. During a tax investigation, HMRC will look at your verification history. If they see you’ve been paying people gross without a verification number, your own GPS will be on the chopping block.
The Fix: Never pay a new sub-contractor until you have their UTR (Unique Taxpayer Reference) and have verified them through HMRC’s portal or your accounting software. Keep a digital log of every verification number you receive.
4. Getting the "Materials" Calculation Wrong
When you are deducting tax from a sub-contractor, you only deduct it from the labor element of their invoice. You don't deduct tax from the cost of materials, VAT, or equipment hire.
However, some contractors get lazy and deduct tax from the total invoice amount, or they allow sub-contractors to claim for materials without seeing receipts. If you allow a sub-contractor to overstate their material costs to reduce their tax bill, you are essentially helping them evade tax. HMRC views this very seriously. If they find you’ve been letting subs "fudge" the material costs, your GPS will be gone in a heartbeat.
The Fix: Always insist on seeing a breakdown of materials on every invoice. If the material costs look suspiciously high for the type of job being done, ask for evidence. Protecting your status is more important than keeping a sub-bie happy with a cheeky tax deduction.
5. Thinking CIS is the Only Tax That Matters
This is the one that catches everyone off guard. HMRC’s annual "compliance test" for Gross Payment Status doesn't just look at your CIS returns. It looks at all your business taxes.
If you are late paying your Corporation Tax, if you’ve missed a VAT return, or if you’ve failed to pay your PAYE for your office staff, HMRC can revoke your CIS Gross Payment Status. They view any tax delinquency as a failure of the "compliance test."
The Fix: You need a bird's-eye view of your entire tax position. You can’t be perfect at CIS but messy with VAT. Staying on top of all deadlines is essential. If you’re struggling with the workload, check out our business services to see how we can take the administrative weight off your shoulders.
6. Failing to Issue Deduction Statements
By law, you must provide your sub-contractors with a "Payment and Deduction Statement" (PDS) within 14 days of the end of the tax month. These statements are vital for the sub-contractors because they use them to prove to HMRC that tax has already been paid.
If you aren't issuing these, or if they are consistently late or inaccurate, sub-contractors will eventually complain to HMRC. Frequent complaints or a discovery during an audit that you aren't providing these statements shows a lack of administrative control. This can lead to a loss of GPS because HMRC only grants that status to businesses they believe are "well-run."
The Fix: Use automated software that generates and emails these statements the moment you process the payment. It saves you a mountain of paperwork and keeps your subs: and HMRC: happy.
7. Ignoring HMRC Correspondence
It sounds simple, but you’d be surprised how many people lose their GPS simply because they didn't check their mail.
If HMRC notices a slight slip-up, they might send a warning letter or a "Notice of Intent to Cancel" Gross Payment Status. Usually, you have 90 days from the date of the notice to appeal or fix the issue. If that letter sits in a pile of unopened mail on your dashboard for three months, the deadline passes, and your status is revoked automatically.
The Fix: Ensure your registered office address is up to date and that someone is actually reading the mail. If you’re a Limited Company, using a professional Company Secretarial service can ensure you never miss a legal notice again.
What Happens if You Lose Your Gross Payment Status?
If HMRC decides to revoke your status, they will send you a notice. You then have a window to appeal. During the appeal, you have to prove that you had a "reasonable excuse" for the failures. "I was busy on-site" or "my accountant forgot" usually won't cut it.
If the appeal fails, you are moved to the standard 20% deduction rate for at least one year. You cannot re-apply for GPS until a full 12 months of perfect compliance has passed. For a lot of construction firms, losing 20% of their gross turnover for a year is a death sentence for their cash flow.
How Makes Sense Accountants Can Help
Keeping your Gross Payment Status shouldn’t feel like a high-stakes game of Minesweeper. With the right systems in place, it’s actually very manageable.
At Makes Sense Accountants, we specialize in helping sole traders and Limited Companies in the construction industry stay on the right side of the taxman. We don't just "do the books": we look ahead to spot potential compliance issues before they become "kill signals" for your GPS.
Whether you need help appealing a tax penalty or you want to hand over your CIS management to the experts, we’ve got your back. We make the numbers make sense, so you can get back to building.
Don't let a simple paperwork error wreck your cash flow.
If you’re worried about your CIS compliance or you’ve received a worrying letter from HMRC, let's chat.
Get in touch with Tim and the team at Makes Sense Accountants today.