In force since 6 April 2026
Since 6 April 2026, contractors in the UK construction industry can be held jointly and severally liable for tax fraud committed elsewhere in their supply chain, even where they had no involvement in it. The test is whether the contractor knew or should have known that a payment was connected to fraud, and it is objective: good intentions are not a defence. The consequences are payment of the tax that was evaded, penalties of up to 30% on top, which can be charged to directors and officers personally, and immediate cancellation of Gross Payment Status with no reapplication for five years. This page explains what changed, who the rules catch, and what HMRC expects you to be doing about it now.
The changes were made by section 220 of the Finance Act 2026, which inserted new sections 62A and 62B into the Finance Act 2004, the Act that governs the Construction Industry Scheme. In outline:
Section 62A creates the liability. Where a payment made under the CIS is connected to fraud, and the contractor knew or should have known of the connection, HMRC can recover the lost tax from the contractor, jointly and severally with those who committed the fraud. The fraud does not need to sit with the contractor's direct subcontractor; it can be anywhere in the payment chain.
Section 62B deals with Gross Payment Status. In fraud-connected cases, GPS can be cancelled immediately, and the business cannot reapply for five years.
The rules took effect on 6 April 2026 and apply to payments made on or after that date.
If you pay subcontractors under the CIS, these rules apply to you. The exposure is greatest for principal contractors sitting at the top of a chain, because liability follows the payments, not the contracts: a phoenix company, a substituted workforce or a missing-trader arrangement three tiers below you can become your assessment if warning signs were visible and your records cannot show you acted on them.
The rules also matter to subcontractors, particularly those holding Gross Payment Status; there is a dedicated section for subcontractors below.
Cancelled immediately in fraud-connected cases, 20% then deducted from every payment received, no reapplication for five years. For most contractors that is a cash flow problem measured in survival rather than inconvenience.
Liability for the tax that someone else in the supply chain failed to pay, recovered from you jointly and severally.
Up to 30% on top of the lost tax, and chargeable to directors and officers personally, not just the company.
This is the critical question, and it's the part that creates risk for honest contractors.
You don't need to have actually known about the fraud. HMRC only needs to prove that a "reasonable person" in your position would have spotted that something wasn't right.
This is an "objective test". Your intentions don't matter; what matters is whether warning signs were present that you failed to act on.
The principle is inspired by the "Kittel" principle in VAT law, where it has been used for years to hold businesses accountable for fraud in their supply chains.
In practice, the question is whether warning signs were present that a reasonable contractor would have acted on. The signs HMRC looks for are consistent: labour priced below what could lawfully cover wages and statutory costs, companies with short histories and familiar directors, chains that go quiet when asked who sits beneath them, workforces that do not match the invoices. None of these proves fraud on its own. What matters is whether you looked, what you found, and what you did about it, and whether any of that is on the record.
HMRC's Guidelines for Compliance set out what good supply chain due diligence looks like, and the direction is clear: checks at onboarding are not enough on their own, because every answer a check gives can change. Registration status, Gross Payment Status, company standing and pricing all move, and a chain that was clean in January can carry a fraudulent entity by June.
The practical standard is threefold: check your subcontractors against the sources that matter (HMRC's own registers, Companies House, commercial benchmarks), keep checking on a cycle rather than once, and record what you found and what you decided, contemporaneously, in a form you could hand over. In an enquiry, the difference between a contractor who did diligence and a contractor who can prove diligence is the whole game.
These rules are written about contractors, but they change life for subcontractors too. Your Gross Payment Status is now more fragile: it can be cancelled immediately in fraud-connected cases, and the five-year reapplication bar makes it worth protecting. Expect the contractors you work for to ask more of you: verification consents, information about your own supply chain, evidence about your workforce and rates. That is not suspicion; it is what the rules now require of them. And the same logic runs downward: if you engage sub-subcontractors of your own, the diligence expectations apply to you in your capacity as a contractor, so the checks you are being asked to satisfy are the checks you should be running on your own chain.
Anyone who pays subcontractors under the Construction Industry Scheme, with the greatest exposure for principal contractors at the top of supply chains. Subcontractors are affected too, chiefly through the new fragility of Gross Payment Status and the increased diligence their contractors must perform.
6 April 2026, applying to payments made on or after that date.
Yes, if HMRC can show you should have known: the test is objective, so the question is whether warning signs were present that a reasonable contractor would have acted on, not what you actually believed.
Liability for the evaded tax itself, penalties of up to 30% on top, which can be charged to directors and officers personally, and immediate cancellation of Gross Payment Status with a five-year reapplication bar.
Yes: documented due diligence. If you can show you checked your supply chain, kept checking, acted on warning signs and recorded your decisions, HMRC must overcome that record to establish that you should have known.
HMRC published guidance on the proposed measures
Measures enacted as section 220
Rules in force
CIS Defence helps you establish systematic due diligence procedures and create the documentation you need to defend against HMRC enquiries.