Significant Changes to the Construction Industry Scheme coming into effect on 6 April 2026

Your subcontractor's fraud could lead to you being liable for any lost tax and a penalty of up to 30% of the lost tax – are your CIS controls ready?

From 6 April 2026, significant changes to the Construction Industry Scheme (CIS) will come into effect, introducing new measures to streamline CIS administration and combat fraud in the construction sector.

HMRC has identified that organised criminal gangs are using CIS deductions to conduct large-scale tax evasion. This can occur where a contractor fails to deduct or account to HMRC for tax on payments made to subcontractors, or where a subcontractor falsely reclaims deductions that were not made. CIS has always demanded careful compliance, but these changes materially raise the stakes, particularly for businesses working with subcontractors and labour suppliers.

The Changes

Under the new CIS regime, contractors will be liable for any lost tax, in addition to a penalty of up to 30% of the lost tax, if it is established that they "knew or should have known" that a transaction in their supply chain was connected to fraudulent tax evasion. The changes will also be relevant to individual directors and persons connected with the business, because they could also be liable to a penalty of up to 30% of any lost tax.

Additionally, HMRC will gain the power to immediately revoke a business's gross payment status if fraud is detected, with the waiting period for reapplying for this status extended from one year to five years.

In relation to the administration of CIS, from 6 April 2026, mainstream contractors will be required to file a nil return when they have not paid any subcontractors that month, and payments to local authorities and specified public bodies will fall outside the CIS. The intention of these changes is to simplify the CIS, although the requirement to file a nil return will again increase the administrative burden for mainstream contractors.

These measures have been modelled on those introduced to counteract VAT fraud. In that context, the introduction of a constructive knowledge test gave rise to a significant number of factual disputes with HMRC, where companies are put in the difficult position of proving an absence of knowledge of fraud.

The measures follow broader government efforts to tighten compliance across labour supply chains, including closer scrutiny of umbrella companies and PAYE responsibilities. The direction of travel is clear: accountability is shifting onto everyone in the chain, not just those directly perpetrating the fraud.

What you need to do

Now is the time for businesses to:

• review CIS policies, procedures and contracts (including supply chain clauses and onboarding processes)

• assess whether their current level of due diligence would withstand HMRC scrutiny under a “knew or should have known” test

• strengthen record-keeping so that checks carried out on counterparties and payments can be evidenced.

If you would like to discuss the coming changes or if you, or a company in your supply chain, are contacted by HMRC and require expert legal advice and assistance please contact Michelle Sloane or Daniel Williams.