Reactive (response to change)

CIS changes April 2026: what contractors and subcontractors need to know

From April 2026, HMRC gains new powers to immediately cancel Gross Payment Status for fraud, mandatory nil CIS returns are reinstated, and public body payments are fully exempted from CIS scope.

Change event: CIS reform: GPS fraud powers, nil returns, and public body exemptions Effective 6 April 2026

Overview

Three significant changes to the Construction Industry Scheme (CIS) take effect on 6 April 2026. Together they strengthen HMRC's fraud enforcement powers, reintroduce a filing requirement dropped in 2015, and provide legal certainty for payments to public bodies.

The GPS fraud powers come from the Finance Bill 2025-26, which amends the Finance Act 2004. The nil return and public body changes come from The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026, which amend SI 2005/2045.

If you are a contractor or subcontractor operating within CIS, you should understand how each change affects your obligations.

GPS fraud powers

The Finance Bill 2025-26 inserts new sections 62A and 62B into the Finance Act 2004. These give HMRC the power to pursue businesses and individuals in the supply chain who "knew or should have known" that payments were connected with fraudulent tax evasion.

Immediate GPS cancellation: Section 66(3) of FA04 is amended so HMRC can remove Gross Payment Status immediately, without the standard notice period, where fraud is involved. Currently, GPS cancellation requires a compliance test failure with procedural steps. Under the new rules, fraud triggers instant removal.

Five-year reapplication ban: Section 66(7) of FA04 is amended to extend the GPS reapplication ban from 1 year to 5 years. If your GPS is cancelled for fraud, you cannot reapply for five years.

Penalties: HMRC can impose a penalty of up to 30% of the tax lost. Liability extends to the business, its directors, and other connected persons.

The "should have known" standard: This goes beyond intentional knowledge. It covers carelessness and failure to ask reasonable questions about your supply chain. Contractors who do not carry out proper due diligence on their subcontractors may be caught by this provision.

The OBR has certified projected revenue of GBP 205 million in 2026-27, declining to GBP 110 million by 2030-31.

⚠️ Five-year ban for fraud

If HMRC cancels your Gross Payment Status for fraud from April 2026, you cannot reapply for 5 years (up from 1 year). During this period you will receive payments after CIS deductions at 20% or 30%. The penalty can be up to 30% of the tax lost, and liability extends to directors and connected persons.

Nil returns reinstated

Mandatory nil CIS returns were abolished in 2015 under SI 2015/429. However, HMRC found that removing the requirement "did not reduce administrative burdens for contractors or for HMRC and resulted in erroneous late filing penalties." From April 2026, nil returns are back.

New Regulation 4(9A): If you are a contractor registered for CIS and you made no subcontractor payments during a tax month, you must file a nil return within 14 days after the end of that month.

Advance notification exemption — Regulation 4(9B): You can avoid filing a nil return if you notify HMRC at least 14 days before the start of the tax month that you will not be making any contract payments. This is useful for contractors with predictable quiet periods, such as seasonal businesses.

Standard late filing penalties apply if you miss the deadline and have not pre-notified.

Public body exemptions

Payments to local authorities, health service bodies, and other public bodies listed in paragraphs (b) to (k) of section 59(1) of the Finance Act 2004 are now fully exempted from CIS scope.

New Regulation 24ZA: This replaces a long-standing Extra Statutory Concession that treated public bodies as if they held Gross Payment Status. The concession meant no deductions were taken, but payments were still technically within CIS and required reporting.

The new regulation goes further: it removes these payments from CIS scope entirely. No CIS deductions are required, and no CIS reporting is needed for payments to qualifying public bodies. This provides legal certainty, since Extra Statutory Concessions have no statutory force.

❗ What you need to do

Review your supply chain due diligence: The new "should have known" standard means you could face penalties if you fail to ask reasonable questions about your subcontractors. Update your verification processes before April 2026.

Set up nil return filing: If you are a CIS-registered contractor, prepare to file nil returns in months when you make no subcontractor payments. Consider pre-notifying HMRC for months you know will be quiet.

Update your payment processes: If you make payments to public bodies, you can stop applying CIS deductions and CIS reporting for those payments from 6 April 2026.

Check your GPS status: If you hold Gross Payment Status, ensure your compliance record is clean. The consequences of GPS cancellation are now far more severe.

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