HMRC’s new CIS fraud rules: What contractors need to do

From April 2026, significant changes to the Construction Industry Scheme (CIS) will increase the responsibilities placed on contractors and strengthen HMRC’s ability to tackle fraud within labour supply chains.

While many businesses are familiar with the existing CIS requirements around subcontractor verification and tax deductions, the new rules represent a notable shift in HMRC’s approach. Contractors will be expected to take greater responsibility for understanding who they are doing business with and identifying potential risks within their supply chains.

For businesses operating in the construction sector, now is the time to review existing processes and ensure appropriate controls are in place.

Why are the rules changing?

The changes form part of HMRC’s wider efforts to combat CIS fraud and improve compliance across the construction industry.

HMRC has long been concerned about fraudulent arrangements involving labour supply chains, where businesses further down the chain fail to meet their tax obligations while continuing to benefit from CIS gross payment status.

The new measures are designed to make it more difficult for fraudulent businesses to operate and to encourage greater scrutiny throughout the supply chain.

What is changing?

One of the most significant changes is the increased emphasis on due diligence.

Contractors will need to demonstrate that they have taken appropriate steps to understand who they are engaging with and to identify potential indicators of fraud within their supply chain.

The expectation is not that contractors become investigators, but that they take reasonable steps to assess risk and challenge arrangements that do not appear commercially credible.

The exact level of due diligence required will depend on the circumstances, but businesses should expect HMRC to look more closely at the checks they perform and the evidence they retain.

What should contractors be looking at?

While every supply chain is different, businesses should consider whether they have sufficient information about:

• The subcontractors they engage.
• Ownership and control of those businesses.
• The nature of the labour being supplied.
• How and where work is being performed.
• Whether arrangements appear commercially reasonable.
• Any unusual features within the supply chain.

Where concerns are identified, businesses should consider whether further enquiries are required before proceeding.

Documentation will be critical

As with many areas of tax compliance, it is not enough to undertake checks if there is no evidence that those checks took place.

Contractors should ensure that due diligence procedures are documented and that records are retained to demonstrate the enquiries made, information obtained and decisions reached.

If HMRC challenges an arrangement in the future, contemporaneous records are likely to be far more persuasive than explanations provided after the event.

Looking ahead

The April 2026 reforms signal a clear direction of travel from HMRC. The focus is no longer solely on whether CIS obligations have been met, but increasingly on whether businesses understand the risks within their supply chains and have taken reasonable steps to address them.

For contractors, effective due diligence and robust record keeping are likely to become increasingly important elements of CIS compliance.

Director Comment

“The April 2026 changes are intended to tackle CIS fraud, but they will also increase expectations on legitimate businesses. Expectations on contractors have increased significantly and these changes only add to the additional compliance obligations brought in by the changes introduced in April 2021. Contractors need to have reviewed their CIS compliance processes to ensure they can demonstrate appropriate due diligence across their supply chains.”