The Construction Industry Scheme (CIS) is a UK tax system for construction work. It helps the government make sure the right amount of tax is paid. Under this system, contractors take some tax money from the payments they make to subcontractors and send it directly to HMRC (the UK tax office). This helps stop people from avoiding tax and makes sure taxes and National Insurance are paid correctly.
In 2025, HMRC became stricter with CIS rules. They started sending reminder letters to contractors to help them follow the rules. HMRC also began doing more checks and inspections. New rules introduced in the Autumn Budget 2025 give HMRC more power to act quickly if a business is not following the rules or is cheating.
Key Changes and Reforms Driving the Crackdown
Stricter Rules for Gross Payment Status (GPS)
HMRC has made the rules for Gross Payment Status (GPS) stricter from April 2024/2025. GPS allows subcontractors to be paid without tax deductions. Now, subcontractors must also follow VAT rules properly to keep GPS. If HMRC thinks a business is involved in fraud or cheating, they can cancel GPS immediately. This includes problems with VAT, PAYE, Income Tax, or Corporation Tax. Only honest and rule-following businesses can get full payments.
New Anti-Fraud Rules from 2026
From April 2026, new rules in the Finance Bill 2025–26 will help stop tax fraud in construction. If a company knowingly takes part in fraud, it can be made responsible for unpaid tax in the whole supply chain. Company directors may also have to pay personal fines of up to 30% of the unpaid tax. HMRC will focus on groups that use fake invoices or fake supply chains to avoid tax.
Stricter Checks on Big Spenders
Businesses that spend more than £3 million on construction work in any 12 months will now be checked more closely. HMRC wants to make sure these businesses follow CIS rules, even if construction is not their main business.
HMRC’s Key Checks for Common Construction Industry Mistakes
HMRC is now paying close attention to common mistakes:
- Wrong tax deductions:
- Registered subcontractors → 20% tax
- Unregistered subcontractors → 30% tax Using the wrong rate can lead to fines.
- Wrong worker type: Treating workers as subcontractors when they are actually employees can cause serious tax problems.
- Materials cost mistakes: Claiming too much for materials to reduce tax is not allowed.
- Late or incorrect CIS reports: CIS returns must be sent every month and must be correct.
- Poor records: Bad record-keeping or mistakes with VAT and PAYE can lead to checks, penalties, or loss of GPS.
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How HMRC’s CIS Crackdown Affects Your Business Operation
The HMRC CIS crackdown for construction has a strong impact on both contractors and subcontractors working in the construction sector.
For Contractors
Contractors must be very careful. If they do not deduct the right tax, HMRC can ask for the missing money for up to 6 years, along with extra charges and fines. If contractors ignore reminder letters from HMRC, they may face checks and inspections.
Contractors now need to:
- Check if subcontractors are registered correctly
- Send correct CIS reports every month
- Keep clear records, especially for materials costs
For Subcontractors
Subcontractors can face problems if they lose Gross Payment Status (GPS). This means:
- Registered subcontractors pay 20% tax
- Unregistered subcontractors pay 30% tax
HMRC may also delay tax refunds, which can cause money problems. Late reports can lead to fines, damage to the business’s reputation, and trouble running the business.
The new rules also affect:
- Businesses that are not construction companies but spend over £3 million on construction work
- Related sectors like urban planning
These businesses must now follow CIS rules fully to avoid fines and surprise tax bills.
Our Tips to Ensure Compliance and Mitigate Risks
Businesses must stay careful and organised to follow HMRC’s CIS rules properly. Subcontractor registration should be checked, and clear records of payments and material costs must be kept. Digital tools help prepare and send correct CIS reports on time and make it easier to answer HMRC questions.
Quick replies to HMRC letters are important, ideally within 45 days, to avoid extra checks or audits. Gross Payment Status (GPS) should be checked regularly, and VAT and PAYE rules must be followed correctly to prevent extra tax deductions or penalties.
Professional help from accountants or tax experts is useful during audits or tax issues. Preparation for future rule changes is also important, as HMRC is using stricter methods to stop fraud. Careful planning helps protect business money, reputation, and long-term stability.
Get Expert Help and Stay Compliant
HMRC has made CIS rules stricter, which can be confusing for many businesses. Following these rules means checking subcontractors carefully, sending correct reports, and keeping records on time. Doing these things helps a business stay safe and avoid problems.
Contractors, subcontractors, and other businesses can benefit from early support to avoid fines and business troubles. Cartwheel International provides helpful services to support businesses with CIS rules and tax duties. A free consultation is available to talk about business needs and ways to stay compliant.
