The most significant hardening of the Construction Industry Scheme in years took effect on 6 April 2026, and it has had very little attention on site. The short version: if your business knew or should have known that payments it made or received were connected with fraudulent evasion of tax, it loses gross payment status immediately, becomes liable for the lost tax, and faces a 30% penalty that is chargeable to its directors personally.
Article · 4 August 2026
The measure was announced at Budget 2025 as measure 1.76, amending Finance Act 2004 Part 3 Chapter 3 and the CIS regulations at SI 2005/2045. Four consequences follow where a business knew or should have known that payments made or received were connected with fraudulent evasion of tax:
The other confirmed grounds for immediate cancellation are false information at registration, a fraudulently incorrect return or information, and knowingly failing to comply with a CIS obligation.
"Knew" is a high bar and most legitimate businesses will never come near it. "Should have known" is not. It is a test about what a reasonable business in your position would have understood from what was in front of it — and in construction, what is in front of you is often a labour chain you did not assemble.
Combine that with the third bullet. The penalty is 30% of tax that somebody else failed to pay, and it reaches directors and connected persons rather than stopping at the company. A director of a small groundworks limited company can now be personally charged a penalty because a gang two links down the chain was fraudulent, if the position was one they should have seen.
Suppose a contractor pays £150,000 a year to a labour supplier that turns out to be fraudulent, and the tax lost to HMRC on those payments is £30,000.
The £39,000 is survivable for some businesses. Five years of being paid at 80% is not — it is the part that closes labour-only subcontractors. See the gross payment status guide for what the status is worth in cash.
From 6 April 2026 recruitment agencies also became responsible for accounting for PAYE and Class 1 NIC on payments to workers supplied via umbrella companies — and where there is no agency in the chain, the responsibility falls on the end client. HMRC can recover PAYE underpayments from them.
Read the two measures together and the direction is unmistakable. On the same date, CIS made you answerable for fraud further down your labour chain and the umbrella rules made you answerable for PAYE further down it. Both point at the same operational change: know who is actually working for you. The employment status guide covers the umbrella side properly.
These measures were announced at Budget 2025 and are described on gov.uk as applying from 6 April 2026, with Finance Bill 2025-26 as the vehicle. We have not independently confirmed that the Act received Royal Assent. HMRC publishes the measures as current and is operating them, so the practical position is that they apply — but if you are taking a formal view on a specific case rather than running your business prudently, check the enacted text.
That distinction is not pedantry. It is the difference between "plan on this" and "rely on this in correspondence with HMRC", and we would rather tell you which one you are reading.
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An anti-fraud package took effect. Where a business knew or should have known that payments it made or received were connected with fraudulent evasion of tax, gross payment status is cancelled immediately, the business becomes liable for the lost tax, and a penalty of 30% of that lost tax applies — chargeable to the business and also to its directors and other connected persons. The bar on reapplying for gross payment status after immediate removal rose from one year to five. False information at registration, a fraudulently incorrect return, and knowingly failing to comply with a CIS obligation are the other confirmed grounds for immediate cancellation.
Under this measure, yes. The 30% penalty on the lost tax is expressly chargeable to the business and to its directors and other connected persons, so it is not confined to the company's balance sheet. That is the single biggest change in emphasis: previously a compliance failure cost the company its gross payment status, whereas a fraud connection now reaches the people running it. It is also why knowing who is in your labour supply chain has stopped being an administrative nicety — the exposure is personal and it turns on what you should have known, not only on what you did know.
It is a test about what a reasonable business in your position would have understood from the information in front of it, rather than what you actually knew. In construction that is a meaningful risk because labour chains are often assembled by someone else: a gang arrives, invoices come from a company nobody can identify, and rates are below anything that could support proper PAYE. Those are exactly the circumstances in which HMRC would say a business should have known. The practical protection is documentary — be able to name the entity behind every set of hands on site, keep the contracts, and keep your CIS verification references.
Five years, where the removal was immediate under these provisions, up from one year previously. That is the consequence with the most commercial weight attached to it. For a labour-only subcontractor, five years of being paid under 20% deduction means a fifth of labour turnover locked up with HMRC until after each 5 April, with no in-year recovery beyond whatever PAYE the business has to offset against. On £400,000 of labour invoicing that is around £80,000 of working capital removed. Ordinary compliance failures do not carry the five-year bar.
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