Updated guidance on Construction Industry Scheme (CIS) reforms

HM Revenue & Customs (HMRC) has recently updated its guidance on Construction Industry Scheme (CIS) reforms that are due to take effect from April 2026.

The message is clear: compliance expectations have materially increased as part of a concerted effort to tackle perceived CIS related fraud. As previously announced, the updated CIS rules introduce a much sharper focus on supply chain accountability, aligning CIS more closely with the VAT “knew or should have known” (Kittel) test and significantly strengthening HMRC’s enforcement powers.

Businesses should now be focusing on whether they have sufficient anti-fraud measures in place. HMRC can transfer tax liability and apply penalties of up to 30% where it considers a business knew or should have known it was connected to fraudulent activity. HMRC has also outlined the types of due diligence checks it expects, which will inevitably place a greater administrative burden on organisations. The immediate loss of Gross Payment Status, coupled with a five year reapplication block, underlines the seriousness with which HMRC is approaching these reforms.

For contractors and developers, this means CIS (alongside VAT and IR35) due diligence can no longer be treated as a box ticking exercise. Organisations need demonstrably robust processes, strong controls and monitoring supported by the use of data and technology.

If your CIS processes, onboarding checks, or system controls haven’t been reviewed recently, now is the time.

Additional changes also confirmed include:

• Reinstatement of mandatory monthly CIS returns, including nil returns unless inactivity is notified in advance – bringing back full late filing penalty exposure.
• Payments to public bodies removed from CIS, formalising previous concessions and reducing unnecessary deductions and reporting on qualifying public sector contracts.

Please get in touch if you would like to discuss these changes and how they will impact your business.

Further information: CISR80000 – Compliance: contents – HMRC internal manual – GOV.UK