For small and medium-sized construction firms, the changes bring increased scrutiny of subcontractors, more responsibility over their supply chain and higher penalties for non-compliance.
Below is our summary of what is changing, who is affected and how we can help construction firms to prepare.
CIS: What is changing from April 2026?
1. Greater focus on supply chain compliance
The broad aim of the reforms is to tackle fraud and non-compliance within construction supply chains. As a result, contractors are increasingly expected to demonstrate that they:
- Properly verify subcontractors
- Maintain accurate records
- Monitor subcontractor behaviour over time
This means compliance will extend beyond simple CIS verification and move towards ongoing risk management.
2. Stronger powers for HMRC
Under the new rules, HMRC will have stronger powers where a contractor knew or should have known that it was involved in fraudulent a CIS-linked transaction.
HMRC will have the authority to:
- Remove the contractor’s Gross Payment Status (GPS) – the timeline to reapply has also increased from one year to five years.
- Recover the associated tax loss
- Apply penalties of up to 30% of the tax involved
Losing gross payment status for five years will severely impact cash flow, working capital and supply-chain relationships, making it essential for businesses to now have solid controls and due-diligence processes in place.
3. Reintroduction of mandatory NIL returns
Contractors will again be required to submit monthly CIS NIL returns when no subcontractor payments are made, unless HMRC has been notified in advance.
For businesses that occasionally pause subcontractor payments, this means ensuring that monthly reporting obligations are still met, or they risk late filing penalties.
4. Payments to Public Bodies exempt from CIS
Payments made to local authorities and certain public sector bodies will be fully exempt from the Construction Industry Scheme. This replaces an old concession by introducing a new regulation that removes these payments from CIS entirely.
This change removes any unnecessary CIS deductions and reporting on public-sector contracts and reduces administrative steps for contractors working with qualifying bodies.
Who is impacted?
Main contractors
Businesses that hire subcontractors will face the greatest impact, including:
- Increased responsibility for supply chain due diligence
- Higher exposure to penalties if fraud occurs
- Greater administrative requirements for reporting
Small and medium construction firms
SMEs that rely on subcontractors may experience:
- More complex compliance processes
- Greater reporting obligations
- Increased need for structured subcontractor onboarding and monitoring
Subcontractors
Subcontractors may face:
- Increased compliance checks
- Greater scrutiny of their tax status
- Risk of losing Gross Payment Status if they fail to meet compliance requirements.
What construction firms should do now
1. Review subcontractor onboarding processes
Before engaging subcontractors, contractors should ensure they carry out proper verification checks, including:
- CIS verification status
- VAT registration
- Company and director information
- Bank account ownership
A structured onboarding process reduces compliance risks and creates a clear audit trail.
2. Strengthen ongoing monitoring
Subcontractor checks should not stop after onboarding. Contractors should monitor their supply chain for potential warning signs, such as:
- Frequent changes to bank account details
- Directors with outstanding charges or insolvency history
- Lack of VAT registration where turnover suggests it should exist
- Unusual payment or trading patterns
3. Prepare for increased reporting requirements
Construction firms should ensure their processes support:
- Monthly CIS reporting
- Submission of NIL returns where required
- Accurate record-keeping and audit trails
4. Consider moving towards digital compliance
Many construction firms still rely on manual data entry and limited subcontractor checks. As compliance expectations increase, this approach can quickly become inefficient and risky. Digital systems can help automate key processes and reduce administrative workload, including:
- Subcontractor verification
- Payment tracking
- Compliance monitoring
- Reporting workflows
How we can help
We can support construction firms to meet the upcoming CIS changes, from reviewing your current processes and handling your CIS returns to helping you move to technology-enabled monitoring.
- Process reviews: We review your current CIS processes, including subcontractor onboarding, verification procedures and ongoing compliance monitoring – identifying gaps that may expose your business to risk.
- CIS returns: Our monthly CIS return service allows us to prepare your fully compliant CIS returns or NIL returns, perform verification checks on your tax treatment and provide CIS payment and deduction statements for your records.
- Technology implementation and optimisation: We can help businesses to streamline their existing accounting or CIS software, implement new subcontractor management systems, reduce manual processes and improve reporting efficiency.
Need CIS support? Contact us
These changes may require updates to your CIS processes, internal controls, contract management and/or reporting. If you have any questions or would like to discuss how we can support your business, please contact us today.
Specialising in the construction sector, David is an advisor to large joint venture projects and residential / commercial developers.
