The Construction Industry Scheme has always had teeth — but from 6 April 2026, HMRC has sharpened them considerably. The updated CIS filing requirements now include compulsory nil returns, a restored late filing penalty regime, and new anti-fraud powers that can reach as far as individual directors. For contractors and subcontractors across the UK, that’s a meaningful shift from how things have worked in recent years.

We work with a number of trades and construction businesses, and the honest truth is that CIS compliance often sits in a grey area for smaller firms. The scheme’s mechanics aren’t always obvious, the admin can stack up quickly, and a change in the rules doesn’t automatically reach everyone it affects. So this post is our attempt to lay out what the current requirements actually are, what changed this year, and where the real risk points tend to be.

If you engage subcontractors to carry out construction work, you’re a contractor under the scheme — and that comes with a monthly filing obligation. Each tax month, you’re required to submit a CIS300 return to HMRC declaring the payments you’ve made to subcontractors and the deductions you’ve applied.

The deduction rate depends on the subcontractor’s registration status. Registered subcontractors are generally deducted at 20%, while unregistered subcontractors face a 30% deduction. Subcontractors who hold gross payment status receive payment in full, with no deduction at source — which is a significant cash flow advantage worth understanding if you’re on the receiving end of CIS payments.

The CIS300 return covers the tax month from the 6th of one month to the 5th of the next, and it’s due by the 19th of the following month. Miss that deadline, and you’re already in penalty territory. Before April 2026, the regime had some flexibility on nil returns — months where you had nothing to report. That flexibility has now been formally removed, which is the change that’s catching people out most often right now.

This is the change that matters most if you’re a contractor who occasionally has quiet months. From 6 April 2026, HMRC restored the requirement to submit a CIS300 return for every single tax month — including months where you made no payments to subcontractors at all. A nil return is still a return, and it still needs to be filed on time.

Failure to submit a nil return carries the same penalty structure as any other late CIS filing, and those penalties can reach up to £3,000 depending on how late the return is and your filing history. For a month where you genuinely had no CIS activity, that’s a significant fine for what might feel like a paperwork formality.

There is one exception worth knowing: if you expect to have no CIS activity for a sustained period, you can notify HMRC in advance by submitting a six-month inactivity request. This effectively pauses your nil return obligation for up to six months at a time. It’s a straightforward process, but it needs to be done proactively — before the gap in activity, not after HMRC has already started chasing.

The broader message from HMRC here is clear: the scheme is being run with less tolerance for administrative lapses than it has been in recent years.

Alongside the nil return changes, HMRC introduced new anti-fraud powers in April 2026 that are worth taking seriously — particularly if you’re a director of a contractor business.

Under the new rules, HMRC can take action where a business knew, or ought to have known, that a payment or CIS deduction was connected to deliberate non-compliance by someone else in the supply chain. The threshold of “ought to have known” is a meaningful one — it’s not limited to cases of active fraud.

The practical consequences include a CIS charge equivalent to 20% of the relevant payment, a 30% penalty on top of that, removal of gross payment status with a five-year bar on reapplication, and in serious cases, the transfer of penalties directly to company directors. That last point is significant. Liability that might otherwise sit at company level can, in certain circumstances, follow individuals personally.

We’re not saying this is a day-to-day risk for well-run construction businesses — it isn’t. But it does mean that verifying your subcontractors properly and keeping records of that verification is more important now than it’s ever been. It’s the paper trail that protects you if questions are asked later.

For subcontractors, gross payment status is genuinely valuable. Getting paid in full rather than having 20% withheld at source makes a real difference to cash flow, particularly on larger contracts. But it’s not something HMRC grants and forgets — it’s reviewed annually, and the criteria are stricter than many people realise.

To keep gross payment status, you need to be up to date with all your tax returns and payments — not just CIS, but Self Assessment, VAT, Corporation Tax, and PAYE where applicable. HMRC looks at the full compliance picture. If the review flags a problem, they’ll write to you, and you’ll generally have around 90 days before they formally withdraw the status. There’s a 30-day window to appeal if you believe the decision is wrong.

If status is withdrawn, the wait before you can reapply is a full year. In practical terms, that means up to 12 months of subcontracted payments arriving with a 20% deduction applied — which you then need to reclaim through your tax return. It’s recoverable, but the timing impact on cash flow is real, and it’s entirely avoidable with good compliance habits.

The takeaway here is simple: gross payment status is worth actively protecting, not just applying for once and assuming it’ll take care of itself.

Having worked with construction businesses across Greater Manchester and beyond, there are a handful of CIS errors that come up repeatedly — not from carelessness, but from genuine uncertainty about where the scheme applies.

Not recognising that work falls under CIS

CIS applies to a wide range of construction operations, and the definition is broader than most people expect. Decorating, landscaping, and certain installation work can all fall within scope depending on the context. We regularly speak to contractors who’ve been making payments without deductions because they assumed CIS didn’t apply to the type of work involved.

Verifying subcontractors incorrectly

Every subcontractor must be verified with HMRC before their first payment, and the verification result determines the deduction rate. Using the wrong rate — because a subcontractor was never properly verified, or because their status changed — creates discrepancies that HMRC will eventually pick up on.

Reconciliation gaps between contractor and subcontractor records

HMRC cross-references what contractors report they’ve deducted against what subcontractors claim as CIS deductions on their own returns. Mismatches cause delays, queries, and in some cases, hold-ups on legitimate tax refund claims. Getting those figures to agree from the outset saves a lot of back-and-forth later.