Since April 2026, HMRC has been operating with significantly strengthened powers to tackle fraud within the Construction Industry Scheme (CIS).
These changes mark a clear shift in expectations for contractors across the construction sector. Compliance is no longer confined to submitting correct returns and verifying subcontractors. Contractors are now expected to demonstrate active oversight of their supply chains and take responsibility for identifying potential fraud risks.
A Shift in Responsibility
Since April 2026, HMRC’s approach has moved beyond procedural compliance towards greater accountability.
Contractors must now consider whether they knew, or should reasonably have known, that a transaction was connected to fraud. This introduces an objective standard based on what a reasonable business would have identified in similar circumstances.
Even where a contractor is not directly involved in wrongdoing, failing to question obvious warning signs may result in HMRC taking action.
Where these rules apply, HMRC may:
- Withdraw Gross Payment Status
- Recover any tax loss linked to the transaction
- Apply penalties of up to 30%
- Take action against company officers, where appropriate
In certain cases, the loss of Gross Payment Status may also prevent a business from reapplying for several years, creating immediate pressure on cash flow and operations.
Increased Focus on Supply Chains
Construction projects often involve multiple subcontractors, agencies and labour providers. Since April 2026, HMRC expects contractors to look beyond their direct supplier and consider the wider supply chain.
Contractors should understand:
- Who hires and pays workers
- Who is responsible for PAYE and CIS deductions
- Whether each business has a genuine commercial purpose
Responsibility now extends to identifying risks that may exist further along the supply chain.
Warning Signs Not to Ignore
The presence of a single warning sign does not necessarily indicate fraud. However, it should prompt further enquiry. Examples include:
- Rates that appear unusually low for the work involved
- Inconsistent or incomplete business, tax, or VAT details
- Frequent or unexplained changes to bank account details
- Requests for payment to third parties
- Discrepancies between invoices, contracts, and work completed
- Lack of clarity regarding who employs or pays workers
- Pressure to expedite payments without adequate documentation
- Evasive responses to routine compliance questions
Where such indicators arise, contractors should pause, seek clarification, and retain records of their review.
Gross Payment Status: Increased Risk Exposure
Gross Payment Status remains highly valuable, as it allows subcontractors to receive payments without deductions at source. However, under the strengthened rules, Gross Payment Status is now more vulnerable.
Where HMRC determines that a contractor knew, or should have known, that payments were linked to fraud, Gross Payment Status may be withdrawn. This can have significant consequences, including:
- Immediate impact on cash flow
- Reputational risk
- Reduced confidence from clients and funders
- Operational disruption
Maintaining Gross Payment Status now depends not only on accurate filing, but also on demonstrable supply chain due diligence.
The Importance of Evidence
Under the updated rules, maintaining clear and accurate documentation is essential. Contractors must be able to demonstrate what checks were carried out, when they were completed, what information was reviewed, and how any identified risks were addressed.
This may include subcontractor verification records, contracts and agreements, payment checks, and relevant correspondence or internal notes. Strong record-keeping provides vital evidence of reasonable care and can offer critical protection if HMRC raises concerns.
Practical Steps for Contractors
Contractors should use the introduction of these rules as an opportunity to strengthen existing controls and processes.
Strengthen Subcontractor Verification
Ensure all subcontractors are properly verified and that supporting evidence is retained. Additional checks on company status, tax references, and banking details should be considered where appropriate.
Enhance Due Diligence Procedures
Due diligence should take place prior to any payment. This includes reviewing contracts, verifying business legitimacy, and understanding the commercial rationale for each supplier relationship.
Maintain Comprehensive Records
Detailed records provide critical protection. These may include:
- Verification results
- Contracts and agreements
- Payment and bank validation checks
- Correspondence and internal notes
Review Labour Supply Arrangements
Ensure clarity around who employs the workforce, who operates PAYE, and the commercial purpose of each entity within the supply chain.
Provide Staff Training
CIS risk extends beyond the finance function. Relevant staff across procurement, operations, and project management should be trained to identify and escalate potential concerns.
How The Infinity Group Can Help
As a specialist CIS payroll provider, The Infinity Group supports contractors in maintaining compliance through accurate payroll processing and robust subcontractor verification.
With HMRC’s increased focus on fraud prevention, it is more important than ever to work with trusted partners and compliant businesses across your supply chain.
Partnering with the right organisations and maintaining strong, consistent processes can help you reduce risk, protect Gross Payment Status, and respond confidently to HMRC scrutiny.