As part of the Budget measures, the government confirmed plans to make some changes to the Construction Industry Scheme (CIS).
From 6 April 2026, HMRC will be able to take immediate action where a business makes or receives a payment that it knew, or should have known, was connected to fraud. In these circumstances, HMRC will have the power to remove Gross Payment Status (GPS) with immediate effect, assess the business for the associated tax loss, and impose a penalty of up to 30%. This penalty may be applied to the business itself or to its officers. Where GPS is withdrawn due to fraud or serious non-compliance, the business will also be barred from reapplying for GPS for a period of five years (an increase from the current one-year limit).
Alongside these measures, the government also plans to simplify the CIS by exempting payments to local authorities and certain public bodies. As part of this change the requirement for construction contractors to submit nil returns will be required. These changes are due to take effect from 6 April 2026 and will first be subject to technical consultation.
The CIS is a set of special tax and National Insurance rules for businesses operating in the construction industry. Under the scheme, businesses are classed as either contractors or subcontractors, and both must understand their tax obligations.
Qualifying contractors are required to deduct tax from payments made to subcontractors and pass these deductions to HMRC. The amounts deducted count as advance payments towards the subcontractor’s tax and National Insurance liabilities.
Subcontractors are not required to register for the CIS, but where they are not registered, contractors must deduct tax at a higher rate of 30%. Registered subcontractors are subject to a 20% deduction unless they qualify for GPS. Where GPS applies, no deductions are made by the contractor, and the subcontractor is responsible for paying all tax and National Insurance at the end of the tax year.
To qualify for GPS, a subcontractor must meet specific criteria, including a strong compliance history of paying tax and National Insurance on time, and carrying on a business that undertakes construction work or supplies construction labour in the UK.
The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.
Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.
Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to qualify for gross payment status whereby the contractor will not make any deductions, and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.
To qualify for gross payment status a subcontractor must meet certain criteria, including having paid their tax and National Insurance on time in the past and have a business that undertakes construction work (or provides labour for it) in the UK.
The subcontractor must also have a turnover of at least £30,000 for a sole trader (or higher depending on the structure of your business). An application for gross payment status can be made online or by post.
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