CIS Changed on 6 April 2026
Here's What That Means for Your Business.
If you work in construction, whether you’re a main contractor running a team of subbies, a sole trader sparky who brings in extra hands for bigger jobs, or an accountant looking after construction clients, the Construction Industry Scheme changed significantly on 6 April 2026.
These aren’t minor tweaks. They’re the biggest CIS reforms in twenty years, and they introduce real financial risk for businesses that don’t adapt.
The good news? None of this is difficult to get right. But you do need to understand what’s changed and take a few practical steps now, not in six months when the first penalty lands.
This guide covers everything: what’s changed, what the penalties look like, who’s affected, and exactly what you need to do about it.
The short version
If you’re short on time, here’s what matters:
Nil returns are back. If you don’t pay any subcontractors in a given month, you must now either file a nil CIS return or tell HMRC in advance. Miss it and you’ll get a £100 penalty. Every single month. No warnings, no grace period.
HMRC can now come after you for someone else’s fraud. If a subcontractor in your supply chain is involved in tax fraud, HMRC can penalise you, even if you had no idea, if they decide you should have known. Penalties include a 20% tax charge on payments made, a further 30% penalty, and immediate cancellation of Gross Payment Status.
Lose your GPS, lose it for five years. The reapplication period has jumped from one year to five. For businesses that rely on GPS for cash flow and contract eligibility, this changes the risk calculation entirely.
Directors can now be held personally liable. These aren’t just company-level penalties. HMRC can transfer them to individual directors and officers. Read on for the detail.
1. Nil CIS returns are mandatory again
Back in 2015, HMRC dropped the requirement to file a CIS return in months when you hadn’t paid any subcontractors. That was welcome at the time. It meant less paperwork for contractors with seasonal work or gaps between projects.
That simplification is now over.
From 6 April 2026, if you’re a CIS-registered contractor and you haven’t made any subcontractor payments during a tax month, you have two choices. File a nil CIS300 return by the 19th of the following month, or pre-notify HMRC that you won’t be making subcontractor payments for a set period (up to six months at a time).
If you do neither, you’ll receive a penalty.
Why this matters more than it sounds
For the last few years, HMRC had effectively suspended CIS late filing penalties beyond the initial £100 fine. That suspension is over. The full escalating penalty regime is now back.
Here’s how the penalties stack up for a single missed return:
Day 1 past deadline: £100 fixed penalty, automatic, no grace period.
2 months late: Another £200, bringing the total to £300.
6 months late: Tax-geared penalty. Either £300 or 5% of the CIS deductions that should have been reported, whichever is greater.
12 months late: A further tax-geared penalty. If HMRC considers the late filing deliberate, this can reach up to 100% of the tax due.
These penalties apply per return. Miss six months of nil returns and you’re looking at six separate £100 penalties as a starting point. That’s £600 for failing to tell HMRC you didn’t pay anyone.
What to do about it
This is an easy fix. If you’re not paying subcontractors, either file a nil return through your CIS online account each month, or call the CIS helpline on 0300 200 3210 to notify them of a period of inactivity. If you use an accountant or payroll bureau, make sure they’re aware of this change and have a process in place for your account.
Set a monthly reminder. The deadline is the 19th of the month following the tax month. Your first one under the new rules, for the period 6 April to 5 May 2026, is due by 19 May.
2. The “knew or should have known” standard
This is the change causing the most concern in the industry, and it deserves careful attention.
Through the Finance Act 2026, HMRC has introduced new powers (sections 62A and 62B of the Finance Act 2004) that allow them to pursue any business that makes or receives a CIS payment connected to fraud, even if that business wasn’t directly involved.
The legal test isn’t whether you knew about the fraud. It’s whether you should have known.
What that actually means in practice
HMRC has published guidance setting out what they’ll look at when deciding whether a business “should have known.” It comes down to three things: your general awareness of how CIS fraud operates in the supply chain; the specific features of the payments or contracts that should have raised questions; and what due diligence you actually carried out.
Their published red flags include:
- Unsolicited approaches from organisations with little or no construction history
- Prices that seem too low to realistically cover labour costs
- Instructions to pay third parties or offshore accounts
- Frequent changes of subcontractor entities supplying the same workers, with previous entities defaulting on their tax obligations
- Invoice irregularities, such as identical templates from supposedly different suppliers
- Directors with no construction experience running construction subcontractor businesses
If any of these are present and you didn’t ask questions, HMRC’s position is that you should have.
The consequences are serious
Where HMRC determines you should have known, they can impose a CIS tax charge equal to 20% of the payment you made, charge a penalty of up to 30% of the lost tax, immediately cancel your Gross Payment Status, and transfer penalties to your directors personally.
It’s worth being direct about this: the standard captures carelessness and inadequate due diligence, not just deliberate fraud. A small builder who hires a roofing subcontractor without checking their background could find themselves caught up in this if that roofer turns out to be part of a wider fraud chain.
That doesn’t mean you need to become a detective. But it does mean you need a basic, documented process for checking who you’re paying before you pay them. More on that below.
3. Gross Payment Status: five years in the cold
GPS has always been one of the most commercially valuable things a subcontractor can hold. It means your clients pay you gross, with no 20% deduction withheld at source, which makes a material difference to cash flow, especially on larger contracts. Many tender processes won’t even consider you without it.
Two things have changed.
First, HMRC can now remove GPS with immediate effect where they believe you knew or should have known about a connection to fraud. No advance warning. No notice period.
Second, if your GPS is cancelled, you cannot reapply for five years. Previously it was one year.
For a subcontractor turning over £1 million a year, losing GPS means roughly £200,000 to £300,000 held back at source throughout the year, only recovered through your tax return at year-end. For five years straight. Some industry commentators have described this as potentially devastating for smaller firms that rely on GPS for working capital and contract eligibility.
How to protect your GPS
The best protection is prevention. That means keeping all your tax affairs completely current: CIS, PAYE, VAT, corporation tax. Since April 2024, VAT compliance has been part of the GPS compliance test too.
Beyond that, it means demonstrating active supply chain due diligence. If HMRC ever questions your GPS status under the new powers, your best defence is a documented trail showing you checked your subcontractors properly and acted on anything that looked wrong.
4. CIS offset against PAYE: a common area for mistakes
If your company is both a contractor and a subcontractor, you’ll know about offsetting CIS deductions suffered against your monthly PAYE liabilities. You claim this through the Employer Payment Summary (EPS), and any excess carries forward or gets repaid at year-end.
This is a legitimate and important cash flow mechanism. But it’s also an area where HMRC is increasingly focused, and under the new anti-fraud powers, incorrect offset claims can trigger the full penalty regime.
The most common mistakes we see:
Claiming through the wrong channel. CIS deductions suffered must be claimed through the EPS, not directly on the CT600 corporation tax return.
Missing Payment and Deduction Statements. You need these from every contractor who deducts from your payments. Without them, you can’t evidence your claim.
Timing mismatches. Claiming a deduction before the contractor has reported it to HMRC will flag your return.
Missing the Corporation Tax UTR on the EPS. This has been mandatory since April 2022, but we still see businesses getting caught out by it.
If you’re offsetting CIS against PAYE, make sure your records match what your contractors have reported. HMRC already has the power to amend your EPS figures and block further offsets for the rest of the tax year where evidence is unsatisfactory.
5. Subcontractor verification: do it properly, do it often
Before making the first payment to any subcontractor, you must verify them with HMRC to determine the correct deduction rate: 0% (gross payment), 20% (registered), or 30% (unregistered or unverified).
The two-year rule still applies: if a subcontractor hasn’t appeared on one of your CIS returns in the current or previous two tax years, you need to re-verify before paying them again. Changes in business structure, such as a sole trader incorporating as a limited company, also require fresh verification.
Under the new enforcement powers, verification matters more than ever. If you apply the wrong rate because you didn’t verify, you’re liable for the shortfall. And verification gaps can be used as evidence that you weren’t conducting adequate due diligence, feeding directly into that “should have known” test.
Our recommendation
Audit your subcontractor register at the start of each tax year. Re-verify anyone you haven’t paid in two or more years. Keep records of every verification, including dates, reference numbers, and rates confirmed. And if something doesn’t look right about a subcontractor, ask questions before making payment. That documented trail is your protection.
6. Public bodies: the one genuine simplification
One welcome change: payments made to local authorities, government departments, NHS trusts, police authorities and other statutory public bodies are now formally outside CIS scope. No deductions, no reporting, no verification required.
This replaces an informal arrangement that HMRC had operated for years with a proper legal exemption. If you do work for public sector clients, this removes some unnecessary admin.
Your compliance checklist
Here’s what we’d suggest doing in the next couple of weeks:
Software. Confirm your payroll or CIS software can handle nil CIS300 returns for the 2026/27 tax year. If you’re not sure, ask your provider.
First nil return. If you didn’t pay any subcontractors between 6 April and 5 May, file a nil return or notify HMRC before 19 May 2026.
Subcontractor register. Review it now. Re-verify anyone absent from your returns for two or more tax years. Check for changes in business structure.
Due diligence process. Put something basic in writing. At minimum: verify CIS status, check Companies House for director information, confirm bank account ownership matches the business name, and keep a dated record of your checks. This doesn’t need to be complicated. It needs to exist.
Director briefing. Make sure your directors understand the new personal liability provisions. This is a board-level issue now, not just an accounts department task.
CIS/PAYE offset. If you’re offsetting, review your EPS submissions and make sure you’re collecting every Payment and Deduction Statement.
Monthly reminder. Set one for every CIS return deadline, including nil returns. A missed nil return costs exactly the same as a missed regular return.
A note for accountants
If you advise construction clients, these changes create both an obligation and an opportunity.
Many of your clients won’t know that nil returns are back. They won’t know the full penalty regime has been reinstated. And they almost certainly won’t know that the new anti-fraud powers could affect them even if they’re doing everything right, simply because they didn’t ask enough questions about a subcontractor.
A proactive conversation now, explaining what’s changed and what they need to do, is exactly the kind of practical value that keeps clients loyal. If their CIS processes need tightening up, that’s work you can help with. And if you’d rather hand the CIS payroll element to a specialist bureau, that’s where we come in.
We handle CIS returns for accountancy practices across the UK. Monthly returns filed on time, nil returns managed automatically, subcontractor verification handled, deduction statements issued. Your clients get a responsive service. You get one less thing to worry about.
How we can help
We process CIS alongside standard PAYE payroll as part of our managed payroll service. That means monthly CIS returns filed on time, subcontractor verification managed, deduction statements issued, and nil returns filed automatically when there’s nothing to report.
If you’re a construction business that wants to make sure your CIS setup is solid, or an accountant looking for a payroll partner you can trust with your construction clients, we’d be happy to talk.
Call us on 0161 524 7696 or email hello@intelligentpayroll.co.uk
We respond to 75% of queries within 4 hours. We’re 100% UK-based. No offshore call centres, no long-term contracts, no jargon.