Changes to the Construction Industry Scheme: What you need to know

20 February 2026

The UK construction sector is preparing for significant updates to the Construction Industry Scheme (CIS), with new legislative changes effective from 6 April 2026. After changes were initially announced at the Autumn Budget 2025, these reforms aim to simplify administration, reduce errors, and strengthen HMRC’s ability to tackle fraud across supply chains.

Whilst there are positive steps toward clarity and compliance, the updates also reintroduce former administrative burdens that businesses will need to prepare for.

Payments to Public Bodies exempt from CIS

From 6 April 2026, payments made to local authorities and certain public sector bodies will be fully exempt from the Construction Industry Scheme. This replaces an old concession by introducing a new regulation (Regulation 24ZA) that removes these payments from CIS entirely.

This change removes any unnecessary CIS deductions and reporting on public-sector contracts, provides clarity, and reduces administrative steps for contractors working with qualifying bodies.

Mandatory NIL returns reintroduced

HMRC will reintroduce mandatory monthly NIL returns where no subcontractor payments are made unless the contractor has pre‑notified HMRC of a dormant period.

This requirement was removed back in 2015 and was widely welcomed at the time for reducing admin and preventing unnecessary late-fling penalties. Its reintroduction will:

Increase administrative workloads for contractors
Heighten the risk of late-filing penalties
Create additional processing demands for businesses and HMRC

If your business has periods with no subcontractor activity, you will need to plan ahead to avoid penalties.

Strengthened HMRC powers

The reforms also grant HMRC more robust powers to intervene where a business knew or should have known that it was involved in fraudulent a CIS-linked transaction.

HMRC will have the authority to:

Immediately remove Gross Payment Status (GPS)
Impose penalties of up to 30%, depending on the severity and circumstances

Loss of GPS can impact cash flow, working capital, and supply-chain relationships, making it essential for businesses to have solid controls and due-diligence processes in place.