Digest (periodic roundup)

Q1 2026 tax roundup: April rate changes and CIS reforms

April 2026 brings two significant tax changes: National Minimum Wage and National Living Wage increases across all age bands from 1 April, and major Construction Industry Scheme reforms from 6 April including enhanced GPS fraud powers, mandatory nil returns, and public body exemptions. This digest summarises what changed and what businesses must do to comply.

Change event: National Minimum Wage and National Living Wage increase April 2026 Effective 1 April 2026

Overview

April 2026 brings two critical tax changes affecting employers and the construction sector. On 1 April, National Minimum Wage and National Living Wage rates increase across all age bands following the Low Pay Commission's recommendations. Just five days later on 6 April, the Construction Industry Scheme undergoes its most significant reform in years, with three changes taking effect simultaneously.

The CIS reforms address persistent fraud and administrative confusion. HMRC gains immediate GPS cancellation powers where businesses knew or should have known about fraudulent payments, with penalties up to 30% of lost tax and a five-year reapplication ban. Mandatory nil returns replace the current inactivity period system, requiring contractors to either file monthly or pre-notify HMRC they will make no payments. Finally, payments to local authorities and public bodies are formally exempted from CIS scope, ending years of uncertainty.

Whilst the NMW increase affects all employers, the CIS reforms specifically impact contractors, subcontractors, and deemed contractors in the construction supply chain. HMRC projects the fraud measures alone will raise £205 million in 2026-27.

Changes covered
2 regulatory changes
Period
January-March 2026 (effective April 2026)
1 April 2026
National Minimum Wage and National Living Wage increases
6 April 2026
CIS GPS fraud powers, mandatory nil returns, public body exemption
HMRC projected revenue
£205 million from CIS fraud measures (2026-27)

National Minimum Wage and National Living Wage increases

From 1 April 2026, all age bands see wage increases following the Low Pay Commission's annual review. The National Living Wage (21 and over) increases, and the 18-20 year old rate sees the largest percentage rise of any age band.

Employers must update payroll systems before the first pay period starting on or after 1 April 2026. HMRC enforces minimum wage compliance through inspections, can issue Notices of Underpayment requiring arrears and penalties, and publicly names non-compliant employers.

Key actions: Review pay rates for all workers (including apprentices, piece workers, and salaried employees whose effective hourly rate may fall below the new minimums). Update payroll by 1 April. Check that deductions for uniforms, tools, or accommodation do not reduce pay below the minimum wage. For construction contractors, ensure that CIS deduction calculations use gross payments before materials exclusions, and verify that net payments after CIS deductions still meet NMW thresholds.

CIS reform: enhanced GPS fraud powers

From 6 April 2026, HMRC gains new powers to immediately cancel Gross Payment Status where a business knew or should have known that payments were connected with fraudulent tax evasion. These powers are contained in Finance Act 2004 sections 62A, 62B, 66(3), and 66(7) as amended by Finance Bill 2025-26.

The consequences are severe: penalties up to 30% of lost tax, a mandatory five-year GPS reapplication ban (increased from one year), and potential joint liability for unpaid tax throughout the fraudulent supply chain. The "knew or should have known" test means ignorance is not a defence — contractors must demonstrate active due diligence.

Warning signs that trigger investigation: Newly incorporated subcontractors with no trading history, labour-only invoices with no visible workforce, below-market pricing, directors with previous dissolved companies, shared addresses across supply chain entities, and rapid changes in company names for the same labour.

Key actions: Implement supply chain due diligence processes immediately. Visit subcontractor business premises before first payment. Check Companies House for director history and dissolved companies. Map your complete supply chain to identify circular payment patterns. Document all verification steps taken. For GPS holders, review all current subcontractor relationships against fraud warning signs — one fraudulent payment in your chain could cost you GPS for five years.

CIS reform: mandatory nil returns from April 2026

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026 introduce new Regulation 4(9A) and 4(9B) of SI 2005/2045, fundamentally changing nil return requirements from 6 April 2026.

Under current rules, contractors can request up to six months of inactivity and avoid filing nil returns. From April 2026, this system ends. For each tax month where you make no subcontractor payments, you must either:

  • File a nil return by the 19th of the following month, or
  • Pre-notify HMRC at least 14 days before the tax month that you will make no payments

All existing inactivity periods automatically end on 5 April 2026. If you currently rely on inactivity requests, you must change your process from April onwards.

Penalties: Missing nil returns triggers the same penalty structure as missing payment returns: £100 fixed penalty for one day late, additional £200 at two months, further penalties at six and twelve months. For contractors with seasonal work patterns, missing six monthly nil returns could cost £600 in fixed penalties alone.

Key actions: Check your CIS account status — if you are currently set to inactive, mark 6 April 2026 in your calendar as the date inactivity ends. Set up recurring monthly reminders for the 19th (return deadline) and 22nd (payment deadline). Consider payroll software that automates nil return filing. If you genuinely no longer use subcontractors, deregister as a CIS contractor entirely rather than filing monthly nil returns indefinitely.

CIS reform: public body exemption formalised

New Regulation 24ZA of SI 2005/2045 formally exempts payments to local authorities and public bodies from CIS scope from 6 April 2026. This formalises a previous Extra Statutory Concession into law.

Public bodies exempt under this provision are those within paragraphs (b) to (k) of section 59(1) Finance Act 2004. This includes local authorities, county councils, district councils, London borough councils, and other specified public sector entities.

This change primarily affects deemed contractors (non-construction businesses spending over £3 million on construction in a rolling 12-month period) whose construction spend is on public sector projects. If all your construction payments go to public bodies, you no longer need CIS contractor registration.

Key actions: If you are a deemed contractor whose only construction payments are to local authorities or public bodies, you can deregister as a CIS contractor from 6 April 2026. If you pay both public bodies and private contractors, you still need CIS registration for the private payments. Review your contractor list and categorise payments to determine ongoing CIS obligations.

❗ Combined action checklist

Employers and construction businesses must take the following actions before April 2026:

  • By 1 April 2026: Update payroll systems with new National Minimum Wage and National Living Wage rates. Review all worker pay rates including apprentices, piece workers, and salaried staff. Verify that deductions for uniforms, tools, or accommodation do not reduce pay below minimum wage thresholds.
  • By 6 April 2026 (CIS contractors): Implement supply chain due diligence processes. Review all current subcontractor relationships against fraud warning signs. Document verification steps for each subcontractor. Map your complete supply chain to identify potential circular payment patterns.
  • By 6 April 2026 (nil returns): Check your CIS account status — any inactivity period ends automatically on 5 April. Set up monthly calendar reminders for the 19th (return deadline) and 22nd (payment deadline). Configure payroll software to handle nil returns or set up advance notification processes.
  • By 6 April 2026 (public body exemption): Review your contractor list and categorise payments between public bodies and private contractors. If you only pay public bodies, consider deregistering as a CIS contractor. If you pay both, continue CIS processes for private payments only.
  • GPS holders (urgent): Review every subcontractor relationship immediately. One fraudulent payment in your supply chain could trigger immediate GPS cancellation with a five-year reapplication ban. Document all due diligence steps taken.
  • Ongoing: Monitor HMRC guidance for implementation details on the "knew or should have known" test. Train staff on fraud warning signs and escalation procedures. Update contracts to require subcontractor disclosure of their full supply chain.

⚠️ Penalties and enforcement

Both changes carry significant penalties for non-compliance:

  • National Minimum Wage breaches: Notices of Underpayment require payment of arrears plus penalties of up to 200% of underpayment (capped at £20,000 per worker). Public naming of non-compliant employers. Criminal prosecution for deliberate breaches with unlimited fines. HMRC can inspect records, interview workers, and investigate complaints from current or former employees.
  • CIS GPS fraud powers (from 6 April 2026): Immediate GPS cancellation where you knew or should have known about fraudulent payments. Penalties up to 30% of lost tax applied to your business, directors, and connected persons. Five-year minimum ban before reapplication (increased from one year). Joint liability for unpaid CIS deductions and VAT throughout the fraudulent chain. Reputational damage affecting relationships with other contractors.
  • CIS nil return failures (from 6 April 2026): Fixed penalty of £100 for one day late. Additional £200 at two months (£300 total). Additional £300 or 5% of deductions due (whichever is greater) at six months. Further penalty up to 100% of deductions due at twelve months. For nil returns where no deductions are due, the percentage-based penalties do not apply, but fixed penalties up to £600 per return remain.
  • Construction contractors must comply with both: Ensure all subcontractor payments meet NMW thresholds after CIS deductions. GPS fraud measures apply to NMW breaches in your supply chain — if subcontractors underpay workers using money you paid them, you could face liability.

ℹ️ UK-wide and devolved application

These tax changes apply UK-wide with the following details:

National Minimum Wage: Applies across England, Scotland, Wales, and Northern Ireland. Rates are set by the UK government following Low Pay Commission recommendations. Enforcement is by HMRC across all four nations.

Construction Industry Scheme: Applies UK-wide to contractors, subcontractors, and deemed contractors. HMRC enforces CIS compliance across England, Scotland, Wales, and Northern Ireland. The GPS fraud powers, mandatory nil returns, and public body exemption all apply equally in all four UK nations from 6 April 2026.

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