The Construction Industry Scheme (CIS) is an HMRC scheme under which contractors deduct money from payments to subcontractors for construction work and pass it to HMRC as advance payments towards the subcontractor's tax and National Insurance. Subcontractors with Gross Payment Status are paid without deductions. Contractors must register and file monthly returns.
How it works in a UK business
Contractors must verify subcontractors with HMRC before paying them. Registered subcontractors have deductions taken at the standard rate, unregistered subcontractors at a higher rate, and those with Gross Payment Status receive payment in full. The contractor files a monthly CIS return and gives subcontractors statements of deductions.
Getting CIS wrong leads to penalties and can cause cash flow problems for subcontractors who reclaim deductions through their own tax affairs.
Changes from April 2026
From 6 April 2026, if a business makes or receives a payment it knew or should have known was connected to fraud, HMRC can immediately remove its Gross Payment Status, assess it for the related tax loss and charge a 30% penalty, which may fall on the business or its officers. A business that loses Gross Payment Status in this way cannot reapply for five years.
Frequently asked questions
What is Gross Payment Status?
Gross Payment Status lets a subcontractor receive payments without CIS deductions, which helps cash flow. Businesses must meet HMRC tests on turnover, tax compliance and running the business through a bank account. HMRC reviews status regularly and can remove it, including immediately in fraud cases from April 2026.
What should contractors do about the 2026 CIS fraud rules?
Contractors should strengthen supply chain checks: verify every subcontractor, check that labour supply chains are genuine and document due diligence. Because the test includes payments a business should have known were connected to fraud, evidence of reasonable checks is the main defence.
Last updated: 5 November 2026