Qualifying Construction industry scheme changes confirmed in the Budget
The government has announced significant construction industry scheme changes as part of the recent Budget measures. These updates aim to strengthen compliance and simplify processes for contractors and subcontractors.
Fraud prevention and Gross Payment Status
From 6 April 2026, HMRC will gain new powers to act immediately where a business makes or receives a payment linked to fraud. In such cases, HMRC can remove Gross Payment Status (GPS) without delay, assess the tax loss, and impose penalties of up to 30%. These penalties may apply to the business or its officers. Furthermore, if GPS is withdrawn for fraud or serious non-compliance, the business will be barred from reapplying for five years, an increase from the current one-year limit.
Construction industry scheme changes to simplify reporting
Alongside fraud measures, the government plans to simplify CIS administration. Payments to local authorities and certain public bodies will be exempt. Additionally, contractors will no longer need to submit nil returns. These changes will take effect from 6 April 2026 following technical consultation.
How the CIS works
The Construction Industry Scheme sets special tax and National Insurance rules for businesses in the sector. Contractors must deduct tax from payments to subcontractors and send these deductions to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities.
Registration and deduction rates
Subcontractors do not have to register for CIS, but unregistered subcontractors face a 30% deduction. Registered subcontractors are subject to a 20% deduction unless they qualify for GPS. Where GPS applies, no deductions are made, and the subcontractor pays all tax and National Insurance at year-end.
Qualifying for GPS
To qualify for GPS, subcontractors must meet strict criteria. These include a strong compliance history and operating a genuine construction business in the UK.
