Do you know that the Construction Industry Scheme (CIS) is currently undergoing its biggest change in years from 6 April 2026? HMRC is introducing these changes to tighten compliance and prevent fraud in construction supply chains. These changes directly affect you if you’re a contractor or subcontractor.
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The major change is that submitting monthly CIS returns is mandatory even if the contractors haven’t paid any subcontractors. But if the contractors wish, they can avoid it by submitting an inactivity request telling HMRC in advance that they won’t pay subcontractors that month.
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Also, HMRC has tightened the rules to prevent organised criminal gangs’ CIS deductions being exploited for large-scale tax evasion. This guide breaks down what CIS is, who it applies to, and exactly what’s changed to keep your business on the right track.
What is Construction Industry Scheme (CIS)?
In the UK, the Construction Industry Scheme (CIS) is a tax treatment for construction businesses tailored by HMRC. Under CIS, contractors deduct money from a subcontractor’s payment and pass it directly to HMRC as an advance payment towards the subcontractor’s tax and National Insurance.
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Works Covered Under CIS are –
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
- preparing the site
- demolition and dismantling
- alterations, repairs, and decorating
- building work
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
Why You Need a Fractional CFO
Contractors who hire subcontractors for construction work must register for the CIS scheme. Also, a business does not do construction work, but it spent more than £3 million on construction in the 12 months since it made its first payment.
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Again, Subcontractors do not have to register.  But they have to pay higher taxes if they’re not registered. Deductions are taken from their payments at 30% instead of 20%.
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You must register as both if you count under both categories.
CIS Deduction Rates
There are three deduction rates under CIS. You can adjust your monthly cash flow by understanding which one applies to you. These are –
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Status | Deduction Rate |
Registered subcontractor | 20% |
Unregistered subcontractor | 30% |
Subcontractor with Gross Payment Status | 0% |
These deductions apply only to an invoice for the labour portion. Materials, tool hire, and other direct costs are excluded from the deduction calculation. These costs are calculated separately on subcontractor bills.
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Contractors must verify each subcontractor with HMRC using their Unique Taxpayer Reference (UTR) or National Insurance number via the Government Gateway before making a payment. This verification step determines which rate will be applied.
What Is Gross Payment Status?
Status (GPS) is a system under CIS in the UK. It allows contractors to pay registered subcontractors without any deductions. Subcontractors pay their tax and National Insurance through Self Assessment tax returns at the end of the tax year.
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They can spend the full payments right away to buy materials or pay workers instead of waiting for a year-end refund.
To qualify for GPS, a business needs to prove it meets HMRC’s tests. A subcontractor will need to show that:
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- paid tax and National Insurance on time in the past
- business does or provides labour for construction work in the UK
- the business is run through a bank account
Also, HMRC will look at your turnover for the last 12 months, ignoring VAT and the cost of materials. Â
Turnover must be at least:
- £30,000 if you’re a sole trader
- £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
- £30,000 for each director of a company, or at least £100,000 for the whole company
What Has Changed for CIS in 2026?
From 6 April 2026, the Construction Industry Scheme (CIS) has introduced several important changes. Three changes are particularly relevant to contractors.
Mandatory Monthly Nil Returns
From April 2026, CIS contractors must submit a monthly return even when no subcontractors were paid that month. This requirement was removed in 2015 but has now been reinstated. The previous automatic appeal process for nil-return penalties has also been removed. If you have not notified HMRC of an inactive period, you must submit a nil return or face a late filing penalty.
New Anti-Fraud Powers
HMRC now has stronger powers to act against businesses involved in CIS-related fraud. This includes immediately removing Gross Payment Status, recovering associated tax losses, and imposing penalties of up to 30%. Businesses losing Gross Payment Status because of fraud or serious non-compliance may also be barred from reapplying for five years.
Public Sector Exemptions
Payments made to local authorities and certain public sector bodies are now exempt from CIS. This removes the need for CIS deductions and reporting on qualifying public sector contracts. It can simplify compliance for contractors working with local councils and housing associations.
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How to Register for CIS
Registration depends on whether you are a contractor or subcontractor. Your registration status determines the CIS deductions applied to your payments.
Registering as a Contractor
If you pay subcontractors for construction work, you must register as a CIS contractor before making your first payment. You can register through your HMRC business tax account. Once registered, you must verify subcontractors, deduct the correct tax, and submit monthly CIS returns, including nil returns from April 2026.
Registering as a Subcontractor
Subcontractors do not have to register for CIS. However, registration can reduce the tax deducted from your payments. Unregistered subcontractors have 30% deducted, compared with the standard 20% rate for registered subcontractors. Registration may also allow you to apply for Gross Payment Status if you meet the requirements.
Applying for Gross Payment Status
Gross Payment Status (GPS) allows eligible subcontractors to receive payments without CIS deductions. You then account for your own tax through Self Assessment or Corporation Tax.
To qualify, you must meet three tests:
- Business test: You must carry out construction work through a UK bank account.
- Turnover test: Net turnover must be at least £30,000 per director or £100,000 for the company.
- Compliance test: Your CIS, tax returns, and payments must be up to date.
Contractor, subcontractor, and GPS registration can be completed through your HMRC online account or the CIS helpline.
Claiming Back CIS Deductions
CIS deductions are not lost. They count as advance payments towards your tax liability and can be reclaimed if you have overpaid.
At the end of the tax year, CIS deductions are offset against your tax bill through Self Assessment. If the deductions exceed your liability, HMRC refunds the difference. For limited companies, excess deductions are offset against Corporation Tax, with a repayment available if deductions exceed the liability.
To claim accurately, keep your monthly payment and deduction statements from every contractor you work for. These show the gross payment, materials deducted, and CIS tax withheld. Without these records, it can be difficult to verify your figures and reconcile them with your tax return.
A common problem is a mismatch between your records and what the contractor reports to HMRC. Resolve any discrepancies before filing to avoid delays. Submitting your Self Assessment return early can also give HMRC more time to process your refund.
Common CIS Mistakes to Avoid
Getting CIS wrong is more than an admin issue. It can create financial liabilities for contractors, with stricter compliance rules applying from April 2026. These are some of the most common mistakes to avoid.
- Failing to verify subcontractors with HMRC before making the first payment.
- Using the wrong deduction rate — 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% for Gross Payment Status holders.
- Missing monthly return deadlines, including nil returns, which became mandatory from April 2026.
- Not issuing payment and deduction statements to every subcontractor each month.
- Ignoring supply chain due diligence — from April 2026, HMRC can take action where contractors knew or should have known a payment was connected to fraud.
- Assuming CIS does not apply — the scheme covers more construction activities than many contractors realise.
Most CIS mistakes are avoidable with the right processes in place. Problems often arise when contractors underestimate how detailed the scheme’s requirements can be. TAJ Accountants works to avoid these mistakes for the Construction Industry Scheme (CIS).
Conclusion
CIS has always required careful management, but the April 2026 changes have raised the stakes. Mandatory nil returns, stronger anti-fraud powers, and greater supply chain liability mean contractors need reliable processes in place.
For subcontractors, the priority is checking deductions and keeping monthly statements. Contractors should focus on subcontractor verification, monthly returns, and documented supply chain due diligence.
TAJ Accountants is a small business accountants firm helping contractors and subcontractors across London stay compliant with CIS. We support registration, monthly returns, and reclaiming overpaid deductions. Book a free consultation to get your CIS processes in order.
Frequently Asked Questions
The Construction Industry Scheme (CIS) sets tax rules for contractors and subcontractors in the UK construction industry. Contractors deduct tax from subcontractor payments and pass it to HMRC. These deductions count towards the subcontractor’s tax and National Insurance liabilities.
Any business paying subcontractors for construction work must register as a contractor before its first payment. Subcontractors do not have to register, but unregistered subcontractors face a 30% deduction instead of the standard 20% rate. Businesses acting as both contractors and subcontractors must register in both capacities.
CIS covers many activities beyond traditional construction. This includes site preparation, demolition, electrical and heating installation, decorating, and construction-related cleaning. It generally does not cover architecture, surveying, or simply delivering materials. If you are unsure, check whether the contract falls within CIS before starting work.
If you deduct too little, HMRC can recover the shortfall from you as the contractor. If you deduct too much, the subcontractor may be entitled to a refund. Resolving incorrect deductions can also create delays and additional administration.
Gross Payment Status (GPS) allows eligible subcontractors to receive payments without CIS deductions. You must pass business, turnover, and compliance tests to qualify. The turnover test requires at least £30,000 net per director or £100,000 for the company. Applications can be made through your HMRC online account. From April 2026, HMRC can withdraw GPS immediately where fraud is involved and prevent reapplication for five years.
Contractors must now submit monthly CIS returns, including nil returns when no subcontractors were paid. Missing these returns can result in penalties. Contractors must also carry out appropriate supply chain due diligence, as HMRC can act where payments are connected to fraud. Subcontractors with Gross Payment Status should also be aware of HMRC’s stronger withdrawal powers.
