From 6 April 2026, tougher measures are being introduced by HMRC to tackle tax fraud in the construction industry. The new measures could have significant implications for contractors and subcontractors, particularly those holding Gross Payment Status (GPS) under the Construction Industry Scheme (CIS).

Under the normal operation of CIS, contractors are required to deduct tax at a rate of 20% or 30% prior to making payments to their subcontractors. The contractor pays this withheld amount to HMRC, with the subcontractor being able to claim relief for these payments on their tax return. However, subcontractors who can demonstrate a strong history of tax compliance may apply for GPS, allowing them to be paid in full without any CIS tax deductions, thereby providing a significant cashflow benefit.

What’s changing?

Under the new rules, HMRC will have the power to immediately cancel GPS where a business knew, or should have known, they engaged in a transaction connected to tax fraud. Notably, this will also include instances where a business has suspicions of fraudulent activity in their supply chain but does not act on this.

Should GPS be cancelled, the time limit for being able to reapply for GPS will also increase from 1 year to 5 years, which can have a significant impact on a business’s cashflows and makes compliance more critical than ever.

Consistent with its stance in relation to VAT where the Kittel principle applies, HMRC will be looking to pass liabilities and penalties to businesses further up the supply chain. This will apply where HMRC considers that the main contractor did not take reasonable steps to establish that their supply chain was free from fraud and therefore knew, or should have known of the fraudulent activity. The new measures will inevitably, place more responsibility and administrative burden on businesses operating in the construction industry.

Should HMRC consider that fraud took place in the supply chain, businesses will be made liable for the tax lost along with a potential penalty of 30% of this. There is also scope for these penalties to be extended to directors and persons connected to the business.

Why is HMRC acting now?

Although earlier measures have helped reduce abuse, such as the introduction of the Domestic Reverse Charge for VAT in 2021 and enhanced CIS GPS compliance tests in 2024, HMRC maintains that serious non‑compliance persists within the construction industry. This is evidenced by the high proportion of construction businesses published as deliberate defaulters, including many listed in HMRC’s November 2025 publication.

These new CIS reforms are a further example of HMRC’s ongoing efforts to improve tax compliance within the construction industry and reduce the substantial tax gap arising from this sector.

HMRC expects the new measures to have an impact to the Exchequer of £110 million by tax year 2030/31.

How can we help?

We have extensive experience supporting clients through CIS compliance checks, managing the process on behalf of our clients, liaising directly with HMRC and working with you to provide a robust response to their queries in the most cost-efficient way. We also take steps from the outset, to reduce the scope of any potential enquiry, and mitigate any financial and non-financial penalties that could be applied.

Given HMRC’s new measures apply to cases where HMRC suspects fraud is involved, a CIS enquiry may also be followed by an investigation under Code of Practice 9. We regularly support clients by challenging allegations of deliberate behaviour where these are not justified and by preparing full and accurate disclosures where deliberate issues need to be set out

Proactively disclosing errors to HMRC is far more cost-effective than waiting for HMRC to open an investigation into your business affairs and greatly assists in mitigating the penalties charged. If you would like to make a disclosure of any potential CIS liabilities arising from your own, or if you need assistance responding to an HMRC enquiry, please get in touch with our specialist team using the contact form below.