By Richard Staunton
28 Apr 2026
In March 2026, HMRC announced its proposals to simplify and improve the existing Construction Industry Scheme (CIS).
For the uninitiated, the CIS scheme has been in existence in various guises since 1972 and was developed to allow construction companies and subcontractors to make payments on account of their potential tax liabilities on an ongoing basis.
The latest iteration was introduced in 2007 and, other than minor tweaks, has remained largely unaltered until now.
The key drivers for the April 2026 changes are undoubtedly HMRC’s view that there is significant fraudulent activity within the construction industry and that drastic action needs to be taken, particularly to stop the practice of folding a business that owes CIS, only to start the next day with another entity.
So, with this in mind, HMRC have introduced some significant changes that will require contractors to consider its current practices and potentially introduce a considerably more robust approach to its due diligence processes, if it doesn’t want to fall foul of the new rules.
HMRC’s new measures significantly expand its powers under the CIS and undoubtedly, the most significant of them all, is the ability to immediately cancel gross payment status (GPS) where a business knew, or “should have known”, that it engaged in a transaction connected to tax fraud.
As a reminder, GPS allows a subcontractor to be paid without a deduction for CIS tax. GPS requires the subcontractor to demonstrate and maintain a high level of tax compliance before it is granted so, to lose it for such a long period will have a severe impact on both cash flow and reputation.
Furthermore, a business that loses GPS will now have to wait to reapply for five years, which has been increased from one year so compounding the financial pressure.
We imagine the concept of the “should have known” threshold is going to be complicated and lead to a potentially judgemental situation, requiring HMRC to apply principles not previously needed in CIS compliance. This could lead to inconsistent treatment by HMRC making supply chain due diligence especially challenging.
The changes put a significant compliance burden onto contractors, who must now ensure their supply chains are free from fraud. Given the complexity of supply chains and the speed at which they can change, it may be an unrealistic expectation to meet in practice.
There are other technical changes to the CIS processes that will need contractors to understand moving forward.
These include the reinstatement of the requirement for contractors to submit monthly CIS 300 returns, even if the contractor has not paid a subcontractor in that month. This can only be avoided if the contractor notifies HMRC in advance that no payments will be made to subcontractors for a future period of up to six months.
The other change from April 2026 allows Local Authorities and certain Public Bodies which are acting as subcontractors to be exempt from CIS altogether. Historically there has been an Extra Statutory Concession (ESC) in place which meant that those Authorities and public bodies were treated as if they had GPS so will no longer need to rely on the existing ESC.
It is important that all construction contractors are aware of these upcoming changes to avoid any unnecessary penalties or compliance intervention. CIS compliance is more critical than ever so if you have concerns over these changes or any other aspects of the scheme then please contact us at Gerald Edelman, where our CIS experts will be able to help your business navigate the complexities of the scheme and help you avoid any nasty surprises.
Last updated: 29.04.2026
