What changed on 6 April 2026
New rules let HMRC act against a business that knew, or should have known, that a job was linked to tax fraud. Here is what that means, in plain words.
The short version
HMRC could make you pay for someone else's fraud if it decides you knew or should have known a job was linked to it. Reasonable checks, written down, are how you show you could not have known.
What HMRC can do
Where a business knew or should have known that a transaction was connected with fraudulent evasion of tax, HMRC can:
- cancel its gross payment status at once, with no reapplying for 5 years (it used to be one year)
- make it liable for the lost tax
- charge a penalty of 30% of the lost tax, which can also reach its directors and other people connected to the business
All the measures came into effect on 6 April 2026. HMRC says they should not affect compliant businesses that do the due diligence needed. Source: Tackling Construction Industry Scheme fraud (policy paper, 26 November 2025).
"Knew or should have known"
HMRC's manual says this is an objective test. It asks what a reasonable business in your position would have spotted, not only what you actually knew. A business should have known where the only reasonable explanation for a deal was a link to fraud. If a deal looks too good to be true, HMRC expects you to avoid it or look at it much harder. Source: HMRC manual CISR85060: 'knew or should have known' principles.
What this does not mean
You are not liable for every subcontractor whatever you do. You are judged on what you should have spotted. HMRC does not set a fixed list of checks: you choose checks that fit the risk of each job, and keep the record.
The rules reach any business paying a subcontractor under a construction contract inside CIS, not only main contractors.
The duties you already have
| Duty | What it costs to get wrong |
|---|---|
| Verify subcontractors | You must verify a new subcontractor before you first pay them, and verify again anyone not on your returns in the current or last 2 tax years. Source: What you must do as a CIS contractor: verify subcontractors. |
| File your monthly return by the 19th of the month after each tax month | Late monthly returns: £100 at 1 day late, £200 at 2 months, then £300 or 5% of the deductions (whichever is higher) at 6 and again at 12 months. Source: What you must do as a CIS contractor: file your monthly returns. |
| Declare employment status correctly | Up to £3,000 if a subcontractor's employment status is wrong on your monthly return. Source: What you must do as a CIS contractor: file your monthly returns. |
| Keep your CIS records | Up to £3,000 if you cannot show your CIS records when HMRC asks. Keep them at least 3 years after the end of the tax year they relate to. Source: What you must do as a CIS contractor: record keeping. |
Read on GOV.UK on 25 October 2026. If GOV.UK changes, we change this page.
Questions contractors ask
One of my subcontractors didn't pay his tax. Is that my problem?
It can be. Since 6 April 2026 HMRC can act where a business knew or should have known that payments it made or received were connected with fraudulent evasion of tax. You are not liable for every subcontractor whatever you do: you are judged on what a reasonable business in your position would have spotted.
What does "knew or should have known" mean?
HMRC's manual CISR85060 calls it an objective test. It asks what a reasonable business in your position would have spotted, not only what you actually knew. A business should have known where the only reasonable explanation for a deal was a link to fraud.
How do I show HMRC I made reasonable checks?
Choose checks that fit the risk of each job, and write each one down with the date and what you were told. HMRC says the measures should not affect compliant businesses that do the due diligence needed. Checks you have recorded are how you show it.
Do the new rules reach labour providers?
Yes. They reach payments made or received, so a labour provider is judged on the money it is paid as well as the money it pays out to its own subcontractors.
Can SubSure tell me a subcontractor's CIS status?
No. Only HMRC's verification shows whether a subcontractor is registered for CIS and how to pay them. Verify them with HMRC before you first pay them, then use the free company check for red flags on the Companies House register.