The updated CIS regulations give HMRC stronger powers to combat supply chain fraud, placing construction firms under tighter scrutiny for due diligence and compliance
The changes to tackle fraud within the Construction Industry Scheme came into force from 6 April 2026.
Under the reforms, should HMRC find that construction firms either “knew or should have known” that fraud was taking place in their supply chain, they can be stripped of their Gross Payment Status (GPS), which allows subcontractors to receive full payments without tax deductions.
On top of this, company directors found guilty may also face personal penalties. Any contractors found guilty will lose their GPS for a minimum of 5 years and face penalties for the tax they evaded, including up to 30% in personal penalties.
These new measures are built on VAT countermeasures that have been tested and proven effective against supply chain fraud. The Treasury expects these measures to raise £205m in their first year.
“Serious non-compliance is still common in the construction industry”
Barbara Bento, partner, tax disputes and investigations at accountancy and advisory firm Buzzacott, said: “From 6 April 2026, HMRC is bringing in tougher measures to tackle tax fraud in the construction industry.
“The change that will really land with contractors and subcontractors is the new power to cancel gross payment status under the CIS immediately when HMRC believes a business knew or should have known it was involved in a transaction connected to fraud.
“Importantly, that can include cases where a business has suspicions about fraudulent activity somewhere in the supply chain but doesn’t act on them.
“That’s significant because GPS is a big cash flow advantage for compliant subcontractors. If it’s cancelled, they revert to CIS deductions, and the time limit to reapply is due to increase from one year to five.
“We also expect that HMRC will use these rules to push responsibility up the chain, looking at whether main contractors took reasonable steps to ensure their supply chains were free from fraud. If it decides they didn’t, businesses can face paying the lost tax plus a potential 30% penalty, with scope for this to extend to directors and connected persons.
“HMRC says this is needed because serious non-compliance is still common in the construction industry, despite earlier measures such as the Domestic Reverse Charge for VAT in 2021 and tighter GPS tests in 2024. This is evidenced by the high proportion of construction businesses published as deliberate defaulters, including many listed in HMRC’s November 2025 publication.
“The practical message for businesses now is to ensure your processes are sufficiently robust to identify tax fraud, don’t ignore red flags and make sure you can evidence the checks you’ve done.”
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