Changes to CIS

by Michael Blaken

The UK construction landscape is shifting. Following the Autumn Budget 2025, several major changes to the Construction Industry Scheme (CIS) came into effect from April 2026.

Whether you are a main contractor managing a complex supply chain or a subcontractor protecting your Gross Payment Status (GPS), these updates represent a significant move toward stricter enforcement and digitised compliance.

The ‘knew or should have known’ standard

This is the most critical change for contractors. HMRC is aligning CIS rules with VAT anti-fraud legislation. If HMRC can demonstrate that a business was part of a transaction connected to fraudulent tax evasion – and that the business ‘knew or should have known’ about it – they can take immediate action.

• Immediate GPS Cancellation: HMRC can revoke your Gross Payment Status instantly without the usual notice period.
• Liability Transfer: The end user (contractor) could be held liable for the lost tax, even if they have already paid the subcontractor in full.
• Personal Penalties: A penalty of up to 30% of the lost tax can be applied to the business, its directors, or connected officers.

The five year reapplication bar

Under these new rules, if GPS is withdrawn due to fraud or serious non-compliance, the lock-out period increases from one year to five years. For many subcontractors, losing the ability to receive gross payments for five years is an existential threat to cash flow.

Mandatory nil returns reintroduced

In an effort to close reporting gaps, HMRC has reintroduced the requirement for contractors to file a nil return for any month in which no subcontractors were paid.

• The Rule: You must file a return even if you paid £0, unless you have notified HMRC in advance that you won’t be making any payments for a specific period.
• The Risk: Failing to file a nil return (or notify HMRC of a gap) will trigger automatic late-filing penalties.

Public body exemptions

The government has codified a previous concession into law: payments made to local authorities and certain public bodies will be officially exempt from CIS. This removes the administrative burden of applying CIS deductions to contracts involving schools, councils, and other qualifying public sector entities.

VAT compliance is now a GPS Test

While introduced in April 2024, the VAT compliance text is now being more rigorously enforced. To keep your Gross Payment Status, you must now be up to date with all VAT returns and payments. Minor, isolated VAT failures might be overlooked, but a pattern of late filing can now lead to the loss of your CIS status.

How to Be Compliant

To stay on the right side of HMRC, here’s what you need to do:

• Enhance Your Due Diligence: Meeting the new ‘should have known’ standard requires reviews of subcontractor history and any sudden changes in their bank details, to prove you aren’t turning a blind eye to potential fraud.
• Review Nil Return Processes: Ensure your accounts team or software is configured to submit zero returns for months where no subcontractors are paid. Automated fines for missing these are a quick way to lose money unnecessarily.
• Prioritise VAT Deadlines: If you are a subcontractor, treat VAT deadlines as essential for your Gross Payment Status. Under the stricter compliance tests, a pattern of late VAT filings is now a direct path to losing your gross payment eligibility.
• Audit Your Supply Chain: Perform a high-level check for red flags, such as subcontractors who aren’t VAT registered despite having a turnover that clearly suggests they should be.

If you are in construction and your business falls under CIS, get in touch with our tax specialists, who are here to help you navigate these changes, protect your gross payment status, and ensure your business remains fully compliant.