In this blog, we explain what’s changing, why it matters, and what practical steps construction business owners should be taking now.
How are the rules changing for CIS from 6th April 2026?
The key shift is around accountability and HMRC will now be able to take action where a business knew, or reasonably should have known, that a payment within the CIS supply chain was linked to fraud.
If this threshold is met, HMRC can:
- Remove your gross payment status immediately
- Hold your business responsible for the tax that should have been paid
- Apply financial penalties to the business, its directors, or others connected to it.
In addition, if gross payment status is withdrawn, the waiting period before reapplying will increase from one year to five years.
Why have new CIS rules been introduced?
The construction sector has long been a focus for HMRC due to the complexity of labour supply chains and the risk of abuse. These new rules are designed to:
- Reduce tax losses linked to fraudulent arrangements
- Prevent dishonest operators from undercutting compliant businesses
- Disrupt organised crime activity within labour supply networks
- Create a fairer trading environment across the industry.
The government expects these measures to recover significant lost revenue over the coming years.
What does “should have known” mean under CIS rules?
One of the most important aspects of the new rules is the “should have known” test.
This means HMRC does not need to prove intent. If warning signs were present and a reasonable business would have questioned them, you could still be held accountable.
Common red flags include:
- Rates or margins that seem unusually high or unsustainable
- Offers of cash incentives or “kickbacks”
- Claims that VAT or CIS reporting does not apply when it clearly should
- Labour suppliers frequently changing business names or structures
- Payment terms that don’t align with normal commercial practice.
In short, if something ‘feels off’, HMRC will expect you to have challenged it.
The risk to gross payment status for contractors
For many contractors, gross payment status is critical to maintaining healthy cash flow. Losing it could mean:
- 20% deductions applied at source on payments received
- Immediate pressure on working capital
- Potential disruption to ongoing projects.
With the reapplication period extended to five years, the impact is no longer short term. It could affect your business for a prolonged period.
Penalties and wider consequences for CIS fraud
Beyond cash flow, the financial and reputational risks are significant when it comes to the new CIS fraud rules. HMRC will be able to:
- Recover unpaid tax from your business
- Charge penalties, which may be substantial
- Take action against company officers and connected individuals.
These CIS changes sit alongside broader efforts by the government to tighten compliance in labour supply chains, including increased scrutiny of umbrella companies and PAYE responsibilities, therefore greater accountability is required for everyone involved in the supply chain, not just those committing the fraud.
There have already been high-profile enforcement cases, including criminal prosecutions linked to CIS and VAT fraud, highlighting how seriously these issues are being treated.
Practical steps construction businesses can take to protect themselves from CIS fraud
With the new CIS fraud rules now in force, taking a proactive approach is essential. At LWA, we recommend:
- Reviewing your labour supply chain
- Understand exactly who you are working with and how payments flow
- Carrying out due diligence checks
- Verify VAT registration, CIS status, and company details
- Documenting your decisions
- Keep records of checks and commercial reasoning
- Training internal teams
- Ensure staff understand what to look out for
- Challenging anything unusual
- If a deal seems too good to be true, take a step back.
A small amount of upfront diligence can prevent much larger issues later.
LWA are here to support you with CIS compliance
These changes highlight just how important it is to stay on top of your CIS obligations.
At LWA, we bring over 30 years’ experience working as accountants and business advisors to the construction sector, supporting businesses at every level of the supply chain. From subcontractors and labour providers through to established contractors, we understand the practical challenges as well as the compliance requirements.
We can help you to:
- review your CIS processes
- strengthen your supply chain checks
- ensure your business remains fully compliant as the rules tighten.
Whether you need a second opinion or ongoing support, our team is here to help you move forward with confidence. Contact us on 0161 905 1801 in our Manchester office, or 01925 830 830 in Warrington, or you can email your query to mail@lwaltd.com.