The Construction Industry Scheme (CIS) applies special tax rules to construction businesses, with contractors being responsible for deducting tax from payments made to subcontractors and paying it over to HMRC. The deduction rate depends on whether the subcontractor is registered with HMRC, and whether they hold a Gross Payment Status (GPS) which allows payment without deductions.

From 6 April 2026, there are major changes in store for CIS which focus on stricter compliance and higher penalties for failure to operate the scheme correctly.

Key Changes from April 2026

Scheme Compliance

Contractors will be required to demonstrate that they have made the necessary verifications of subcontractors as well as ongoing monitoring of engagements, with increased responsibility for fraud within their supply chain. If HMRC considers that a contractor has failed in their obligations and knew, or should have known that they were involved in fraudulent transactions, they will immediately cancel their GPS. Currently, the timeframe to reapply for GPS is one year, but under the new rules, this will increase to five years.

The penalties for businesses and in some cases their directors for connection to CIS fraud can be up to 30% of the lost tax.

Administrative changes

In order to simplify the scheme, payments to local authorities and certain public bodies will be exempt from CIS deductions. HMRC are reintroducing the requirement for a contractor to submit nil returns for months where no payments were made to subcontractors.

Actions to take

The removal of GPS could have a huge negative impact on a contractor’s cashflow as they would be subject to deduction of tax on all of their earnings within CIS before they pay any subcontractors for their work. The increase in time under which a contractor can reapply for GPS can therefore have far more serious consequences than previously.

As such, it is highly important for businesses operating within CIS to review their processes for engaging with new subcontractors, as well as revisiting recent contacts to ensure all necessary measures have been taken to ensure compliance.

Get in touch

If you would like to discuss any of this further, please don't hesitate to get in touch with your usual Johnston Carmichael adviser, a member of our Construction and Property team, or by filling out the short form below.