CIS Changes April 2026: What Contractors Must Do
The short answer
From 6 April 2026, if you knew or should have known a payment in your supply chain was linked to tax fraud, HMRC can make you pay the lost tax, add a penalty of up to 30% and remove your gross payment status for 5 years. Monthly CIS returns are due even when you paid no subcontractors, unless you told HMRC in advance.
- Fraud in your chain is now your problem. 'Knew or should have known' is the test, so weak checks count against you.
- Up to 30% on top. A penalty of up to 30% of the lost tax, and it can be passed to directors personally.
- Gross status can go overnight. Immediate removal, then a 5-year wait to reapply (it used to be 1 year).
- Nil returns are back. File every month, or tell HMRC in advance about the months you won't pay any subcontractor.
You pay subcontractors every month. One of them uses a labour supplier you've never met. Somewhere down that chain, someone isn't paying their tax. Since 6 April 2026, that can land on you.
This guide is for UK contractors who run CIS for their subcontractors. It explains the CIS changes from April 2026 in plain words, then gives you a routine to protect your gross status and your margin.
It comes from the owner of a working London construction company that runs its projects through a supply chain of trades. If you'd rather talk it through, book a free strategy call.
What changed on 6 April 2026
The Finance Act 2026 changed the Construction Industry Scheme in four ways. Two of them are serious for any contractor with a big supply chain.
| Area | Before April 2026 | From 6 April 2026 |
|---|---|---|
| Fraud in your supply chain | Mainly the fraudster's problem | You can be liable if you knew or should have known |
| Penalty | No specific supply chain penalty | Up to 30% of the lost tax, can pass to directors |
| Losing gross status for fraud | 1-year wait to reapply | Immediate removal, 5-year wait |
| Months with no subcontractor payments | No nil return needed | Monthly return, or tell HMRC in advance |
| Paying local authorities | Concession | Outside CIS altogether |
HMRC expects the new rules to raise £205 million in the first year. That tells you how hard it plans to use them.
'Knew or should have known': the test that matters
You don't need to take part in fraud to be caught. If there was fraud in your labour supply chain and the warning signs were there, HMRC can say you should have known. Then three things can follow:
- The lost tax HMRC can make your business pay the tax that went missing in the chain.
- A penalty of up to 30% On top of that tax, and it can be charged to directors personally.
- Gross status gone Removed with immediate effect, and a 5-year bar before you can reapply.
Losing gross status means 20% comes off every payment you receive. CIS comes off the labour part of each invoice. On £500,000 of labour a year, that is up to £100,000 of your cash held back until you reclaim it.
Thinking "we verified them with HMRC, so we're covered". Verification only tells you the deduction rate. It says nothing about who your subcontractor pays, or how.
HMRC's own guidance sets out the factors it weighs, and the warning signs it looks for are the ones you'd spot on any job. Labour rates well below the market. A company set up last month. Directors with a string of dissolved companies. Workers paid through a chain of umbrella or payroll firms nobody can explain.
Not sure your checks would stand up if HMRC asked?
Book a free strategy call and we'll look at how you take on subcontractors.
Nil returns and the monthly routine
From April 2026, a registered contractor must file a CIS return every month, even when no subcontractor was paid. The way out is to tell HMRC in advance that you won't be paying anyone for that period.
Late returns, nil ones included, can bring penalties. They start at £100 and rise the longer a return is late. Each late return also counts against your own compliance record, and that record decides whether you keep gross status. Since April 2024, VAT counts in that test as well.
One more change works in your favour. Payments to local authorities and certain public bodies are now outside CIS altogether. If a council is your subcontractor or customer, stop deducting where the rules no longer apply.
Your supply chain check routine
Here is the routine we suggest. It is our method, not a list HMRC publishes, but every step leaves a record you can show:
- Before the first payment: verify the subcontractor with HMRC and look them up on Companies House. Check the date set up, the directors and their other companies.
- Ask who pays the workers: directly, through an agency or through an umbrella firm. Get it in writing, with the names.
- Compare the rate: if the price is far below what other trades charge for the same work, ask why and write down the answer.
- Check insurance and paperwork: current certificates, a business bank account in the company's name and invoices that match it.
- Repeat it: at least every 6 months, and again when a subcontractor's company, bank details or directors change.
- Keep one file per subcontractor: checks, dates, answers and who signed them off.
The checks must sit with someone senior. The penalty can reach directors, so a director should sign off every new subcontractor. If you're still choosing who to work with, read how to find reliable subcontractors.
If HMRC has already written to you, read what to do when HMRC opens a compliance check. If your own gross status is at risk, see CIS gross payment status refused or removed.
Make it part of how you run the company
Most contractors don't fail these rules on purpose. They fail because subcontractors are taken on in a rush, by phone, on site, with paperwork "to follow". The fix is a system, not a heroic effort from the bookkeeper:
- One onboarding form Nobody gets paid until it's complete and signed off.
- One monthly CIS date Returns filed, nil or not, on the same day each month.
- One owner A named person, ideally a director, responsible for supply chain checks.
- One file Every check, certificate and answer kept in one folder per subcontractor.
Adam and Ali were stuck at about £500K a year, with Adam running most of the business himself. After putting structure in place, they won a £528K project in about 4 months.
Individual results, not typical or guaranteed.
Sviat mentors owners one to one himself, while still running his own construction company. He looks at how you take on, manage and pay your supply chain, then builds the system that fits your business. The aim is results in about 4 months, not the 1–3 years many coaching programs take.
To get your systems right before HMRC asks, book a free strategy call. Or score your business in 4 minutes with the free Construction Business Scorecard. If you want a mentor to set up your whole business, not just CIS, see our one-to-one programs.
The Cash Flow & Margin Blueprint
CIS, VAT reverse charge and retentions explained, plus the separate tax account habit.
Get the free guideThis guide is general information, not tax advice. For your own situation, speak to your accountant or a tax adviser.
Before your next subcontractor payment
- The subcontractor is verified with HMRC and checked on Companies House
- You know, in writing, who pays their workers
- Their rate makes sense for the work
- A director has signed off the check
- Your CIS return for this month is in the diary, nil or not
