CIS Changes from April 2026: What Subcontractors Need to Know

Several important CIS changes from April 2026 affect how the Construction Industry Scheme operates for both contractors and subcontractors. These reforms tighten compliance requirements, strengthen HMRC's powers to tackle fraud, and reintroduce mandatory nil returns that were scrapped in 2015.

While many of these changes affect contractors directly, they have knock-on effects for subcontractors too — particularly if you hold gross payment status or work with contractors who may be affected by the new fraud prevention rules.

Mandatory CIS Nil Returns Are Back

A CIS nil return is a monthly return that contractors file with HMRC even when they have made no payments to subcontractors. From 6 April 2026, filing nil returns is mandatory again after being removed in 2015.

What Changed

HMRC removed the nil return requirement in 2015 to reduce paperwork. It's now been reinstated because the gap allowed some businesses to avoid filing altogether, making it harder for HMRC to distinguish between inactive contractors and those failing to report.

How It Works

Contractors have two options each month when they haven't paid any subcontractors:

1. File a nil return — submit a return showing zero payments, due within 14 days of the end of the tax month
2. Pre-notify HMRC — inform HMRC in advance that no payments will be made, which suspends the filing requirement for that month

If a contractor does neither, HMRC's automated systems issue penalties.

CIS Nil Return Penalties

The penalty for a late or missing CIS nil return starts at GBP 100 and escalates over time. The full penalty structure follows the existing framework:

Delay	Penalty
1 day late	£100
2 months late	£200
6 months late	£300 or 5% of the liability, whichever is greater
12 months late	£300 or 100% of the liability, whichever is greater

These penalties are automated — they're issued by HMRC's systems without manual review, so it's important for contractors to stay on top of filing deadlines.

What This Means for Subcontractors

You don't file the return — your contractor does. But if your contractor fails to file, it can create problems on your tax record. If HMRC doesn't have a return showing your payments and deductions, your CIS credits may not appear correctly when you file Self Assessment.

What to do: If you notice discrepancies between your payment statements and your HMRC tax record, ask your contractor whether their returns are up to date.

Stricter Gross Payment Status Cancellation Rules

Gross payment status (GPS) allows subcontractors to receive payments without any CIS deductions — a significant cash flow advantage. The April 2026 changes make GPS harder to keep and considerably harder to regain if it's revoked.

Immediate Cancellation for Fraud-Related Activity

HMRC now has the power to cancel a contractor's or subcontractor's GPS immediately — with no advance notice — if the business "knew or should have known" that a transaction was connected to the fraudulent evasion of tax.

Previously, HMRC had to give notice before revoking GPS. That safeguard no longer applies in fraud cases. This mirrors similar powers HMRC already uses for VAT.

Five-Year Reapplication Ban

If your GPS is cancelled on fraud grounds, you cannot reapply for five years. Previously, the waiting period was one year. For a subcontractor with £500,000 annual turnover, losing GPS means roughly £100,000 per year held back in CIS deductions — a significant cash flow impact over five years.

Enhanced Compliance Testing

HMRC's existing GPS compliance tests continue to apply — you need a clean record of filing and paying tax on time. But the bar has effectively been raised. HMRC is more actively reviewing GPS holders and may cancel status more readily where compliance issues are found.

For details on how GPS works and the requirements, see our guide on CIS gross payment status.

New CIS Fraud Prevention Powers

The CIS fraud prevention rules introduced in April 2026 give HMRC stronger powers to respond to suspected fraud in the construction supply chain.

The "Knew or Should Have Known" Standard

HMRC can hold contractors liable for lost tax revenue where the contractor "knew or should have known" that a transaction in their supply chain involved tax evasion. This isn't limited to the contractor doing something wrong themselves — it covers situations where they failed to spot warning signs.

What HMRC expects contractors to demonstrate:

• CIS registration verification before making any payment
• Companies House checks confirming the subcontractor is a legitimate entity
• Bank account verification matching the registered business name
• Ongoing monitoring throughout the engagement — not just initial checks

Director-Level Liability

Under the new rules, penalties for fraud-connected transactions can extend to company directors and connected persons individually — not just the business. Penalties can reach up to 30% of the tax HMRC considers was lost due to the fraudulent transaction.

What This Means for Subcontractors

If you're a legitimate subcontractor, these changes work in your favour — they're designed to push fraudulent operators out of the industry. However, you may notice contractors asking for more documentation during onboarding:

• Proof of CIS registration and UTR
• Bank account details matching your registered business name
• Valid insurance certificates
• Company or business address verification

This is your contractor doing their due diligence under the new rules. Cooperating with these checks helps build a strong working relationship and protects both parties.

CIS Public Body Exemption

The CIS public body exemption means that from 6 April 2026, payments made to local authorities and certain public sector bodies are fully exempt from CIS. This formalises what was previously an informal concession (Extra Statutory Concession) into legislation through new Regulation 24ZA.

In practice: If you work for a local authority or public body as a contractor, CIS deductions and reporting no longer apply to payments from those bodies. This simplifies compliance for contractors working on public sector projects.

How CIS Changes Affect Contractors and Subcontractors

Change	Contractors	Subcontractors
Mandatory nil returns	File monthly even with no payments	Check your contractor is filing correctly
GPS immediate cancellation	Risk losing GPS without notice in fraud cases	Same risk if you hold GPS
Five-year reapplication ban	Cannot reapply for GPS for 5 years if cancelled for fraud	Same applies
Fraud liability	Liable for lost tax in supply chain fraud	May face more due diligence checks
Public body exemption	No CIS on payments from public bodies	No change to your deductions

What You Need to Do Now

If You're a Subcontractor

1. Confirm your CIS registration is current — make sure your contractor has your correct UTR and NI number
2. Keep all payment statements — these prove your deductions if your contractor's returns are late or incorrect
3. Cooperate with enhanced due diligence — provide documentation your contractor requests promptly
4. If you hold GPS — review your tax compliance to check that Self Assessment returns are filed and tax is paid on time

If You're Also a Contractor

1. Set up a nil return process — file for every month with no subcontractor payments, or pre-notify HMRC
2. Document your due diligence — keep records of verification checks for every subcontractor
3. Review your GPS compliance — check you meet the requirements to avoid cancellation
4. Watch for red flags — unusual invoice patterns, frequent bank changes, or missing registrations are worth looking into

Frequently Asked Questions

Do these changes affect my CIS deduction rate?

No. The deduction rates remain the same: 20% for registered subcontractors, 30% for unregistered, and 0% for those with gross payment status. The changes affect compliance rules and HMRC's enforcement powers, not the rates themselves.

Can HMRC cancel my gross payment status without warning?

Yes — but only where fraud is involved. If HMRC determines that your business knew or should have known that a transaction was connected to tax evasion, they can cancel GPS immediately. For standard compliance issues (late returns, unpaid tax), the normal review process with advance notice still applies.

I'm a subcontractor, not a contractor. Do I need to file nil returns?

No. Nil returns are filed by contractors, not subcontractors. As a subcontractor, you file your annual Self Assessment return — that hasn't changed.

What if my contractor doesn't file their returns on time?

Your contractor's late filing doesn't affect your tax liability, but it can affect your HMRC record. If your CIS deductions aren't showing correctly, contact HMRC or ask your contractor to check their filing. Keep your own payment statements as backup evidence.

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This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.

Official Sources

• Construction Industry Scheme (CIS) — GOV.UK
• What you must do as a CIS subcontractor — GOV.UK
• CIS for subcontractors: check your payments and deductions — GOV.UK
• Gross payment status for CIS — GOV.UK