From 6 April 2026, HMRC will have powers to act immediately where a company operating in Construction in the CIS regime makes or receives a payment connected to fraud that the company knew about or should have known about.

The first measure allows HMRC to revoke Gross Payment Status (GPS) from subcontractors without notice. This means their customers, defined as contractors in the legislation, will deduct 20% from payments and send it to HMRC. This is expected to significantly affect a subcontractor’s cash flow. Subcontractors losing GPS will also be barred from reapplying for five years, creating a long-term impact on their ability to operate under CIS scheme as they will need significantly greater working capital.

The second measure introduces a penalty of 30% of the lost tax amount payable by the businesses involved in fraudulent payments. This penalty can apply not only to the businesses but also to its officers, Directors could be personally liable. It is expected that these changes will disrupt fraudulent supply chains and protect compliant businesses.

While HMRC states that businesses already meeting their obligations will not be affected, the new rules raise the bar for due diligence and risk management and thus increase the administrative costs for all businesses operating in the sector. It is vital that businesses providing construction services understand the new guidance on supply chain due diligence published by HMRC, and in particular the key factors HMRC considers when assessing whether a business “should have known” that a transaction or supply chain was connected to fraud.

The immediate cash flow challenges, reputational damage for a business and the potential personal liabilities of the directors and officers of a construction business which will arise if a company is caught by these new rules are expected by HMRC to ensure that all businesses comply.

Would you like to know more?

If you’d like to discuss the above, please speak to your usual Blick Rothenberg contact or Heather Powell using the form below.