The Construction Industry Scheme runs on technical language. So does the case law it now inherits. This glossary covers the terms that matter most for understanding the April 2026 changes, the “knew or should have known” standard, and the supply chain risk indicators Tax Radar monitors.
Each term links from the relevant pages in our FAQ and articles. If a term you want is missing, contact us and we will add it.
A contemporaneous, timestamped record of the checks performed, the data sources used, the conclusions reached, and the decisions taken. In a “knew or should have known” challenge, the audit trail is the primary evidence the courts examine. Tax Radar produces a continuous audit trail as the basis for its monthly Compliance Passport.
A site-level verification request sent to a project manager through CIS Defence, capturing timestamped evidence of who is actually working on site. Includes photographic verification where appropriate. Unique to Tax Radar; addresses the gap between paperwork identity and on-site identity that conventional verification cannot close.
Construction Industry Scheme. The UK tax regime under which contractors deduct tax at source from payments to subcontractors and account for it to HMRC. Established by Finance Act 2004 and operated under the Income Tax (Construction Industry Scheme) Regulations 2005.
The monthly return a contractor files with HMRC reporting all payments made to subcontractors in the period, together with deductions made.
HMRC's published operating guide for contractors and subcontractors. The primary administrative reference for CIS.
A pattern in which the same individual appears as a director of multiple companies that share characteristics associated with fraud (recent incorporations, dissolved predecessors, shared registered addresses, sudden trading inactivity). A core indicator in phoenixism detection.
The monthly, timestamped record produced by CIS Defence that documents every check carried out on every subcontractor in the period. Designed to evidence the “knew or should have known” standard if HMRC opens an enquiry. Exportable as a single PDF.
The legal concept that a party is treated as knowing something it should reasonably have known, even if it did not actually know it. The “should have known” limb of the Kittel test rests on constructive knowledge.
The ongoing checking of subcontractor risk indicators between engagement and payment, as opposed to a single point-in-time check at onboarding. Required by HMRC's published guidance to demonstrate reasonable care under the new regime.
Under CIS, a business that pays subcontractors for construction work. Includes mainstream construction businesses and deemed contractors.
A non-construction business whose construction spend exceeds £3 million over a rolling 12-month period. Property developers, large retailers, and significant landlords commonly fall into this category. Deemed contractors are within scope of CIS, including the new joint and several liability provisions.
The removal of a subcontractor's CIS registration by HMRC, usually following a compliance failure. A deregistered subcontractor cannot be verified through the CIS Verification Service, and any payment made to a deregistered subcontractor exposes the contractor to additional deduction obligations and risk.
The liability of a company director, in their personal capacity, for unpaid tax or penalties of the company. Under the Personal Liability Notice regime, HMRC can hold directors personally liable for up to 30% of the company's penalty where deliberate or reckless conduct is established. The April 2026 CIS changes expand the situations in which this power can be applied.
A company that has been struck off the Companies House register. A common feature of phoenix patterns: liabilities are left behind in the dissolved entity while the business continues under a new incorporation.
The body of enquiry a contractor performs before and during its engagement with a subcontractor. In the CIS context, includes identity verification, trading history checks, benchmarking, and ongoing monitoring. The practical expression of reasonable care.
The HMRC-granted status that allows a subcontractor to receive payments without the standard 20% CIS deduction at source. Reviewed annually. Materially affects cash flow. From April 2026, HMRC can remove GPS immediately where it considers a business to be connected to CIS fraud.
Guidelines for Compliance 12. HMRC's published guidance setting out reasonable care expectations for the Construction Industry Scheme. Tax Radar's detection models map directly to GfC12 indicators.
HMRC's specialist unit responsible for investigating the most serious tax fraud. Has been a strategic priority for CIS-related fraud for over a decade. The unit responsible for building the cases that lead to GPS removal, prosecution, and personal liability action under the new regime.
The legal principle that two or more parties can each be held liable for the full amount of a debt or obligation. Under sections 62A and 62B of the Finance Act 2004 (inserted by the Finance Act 2026), HMRC can hold a principal contractor jointly and severally liable for CIS fraud committed by subcontractors in its supply chain, where the principal contractor “knew or should have known” of the fraud.
The principle established in Kittel v Belgium (Case C-439/04, CJEU, 2006) that a trader who knew or should have known that its transaction was connected with fraud loses the right to certain tax benefits. Originally a VAT principle, now imported into CIS via Finance Act 2026.
The standard against which a contractor's conduct is judged under sections 62A and 62B of the Finance Act 2004 (inserted by the Finance Act 2026). The test originates in VAT case law and now appears on the face of the statute at s.62A(1)(b) (see Kittel principle). The “should have known” limb is the more difficult one: it rests on constructive knowledge, and requires evidence of what an objectively reasonable contractor in the same position would have known.
The practice of comparing a subcontractor's labour rates against validated industry data to identify outliers. Uncommercially low rates are treated by HMRC as a fraud indicator, because labour-only fraud structures rely on undercutting market rates. Tax Radar benchmarks against Spon's 2026 Architects' and Builders' Price Book for most trades.
A VAT fraud structure in which businesses dissolve before paying VAT due, while the VAT is reclaimed elsewhere in the chain. The body of case law that built the “knew or should have known” test was developed against MTIC fraud and is now being applied to CIS.
A notice served by HMRC on a company director making them personally liable for up to 30% of the company's tax penalty, where the director's deliberate or reckless conduct caused the company's non-compliance. The new CIS regime expands the situations in which a PLN can be served.
The practice of dissolving a company to evade tax liabilities and re-incorporating substantively the same business under a new name, often with the same directors, address, and trading activity. A central indicator of fraud in CIS supply chains. Tax Radar detects it through director linkages and dissolution patterns across Companies House records.
A company that has been re-incorporated following the dissolution of a predecessor in circumstances suggesting an attempt to escape liabilities. See phoenixism.
A single verification carried out at a specific moment, typically at onboarding. Insufficient by itself under the new regime, which requires continuous monitoring.
The contractor at the top of a CIS supply chain; the party that engages subcontractors directly. The party most exposed under the new joint and several liability rules.
The standard of due diligence that an objectively competent contractor would apply when engaging and paying subcontractors. Includes identity verification, trading history checks, risk monitoring, benchmarking, and contemporaneous documentation. The standard expected rises with the size and sophistication of the contractor.
A specific indicator that elevates the risk profile of a subcontractor. Examples include: very recent incorporation, dissolved predecessor companies, common director linkage, uncommercially low pricing, and HMRC deregistration. Tax Radar's risk model is built around the red flags HMRC's own investigators use.
Tax Radar's three-tier risk classification, applied at subcontractor, supply chain, and Compliance Passport level. Red indicates significant risk requiring action; Amber indicates elevated risk requiring monitoring; Green indicates risk within acceptable bounds. The vocabulary is intentionally consistent across all CIS Defence output.
The provision of the Finance Act 2004 (inserted by the Finance Act 2026) that establishes joint and several liability for CIS fraud across the supply chain.
The provision of the Finance Act 2004 (inserted by the Finance Act 2026) that allows HMRC to remove Gross Payment Status immediately, without the previous compliance test period, where a business is considered to be connected to CIS fraud.
The HMRC process for verifying individual subcontractors who trade as sole traders rather than through a limited company. Uses UTR and National Insurance number as identifiers.
A business or individual engaged by a contractor to perform construction work under CIS. Receives payment subject to CIS deduction at source unless they hold Gross Payment Status.
The chain of contractors and subcontractors through which construction work is delivered. The new regime extends a principal contractor's liability throughout that chain, not just to its direct counterparties.
Industry shorthand for the position a contractor occupies in a supply chain. Tier 1 contracts directly with the client; Tier 2 contracts with Tier 1; Tier 3 contracts with Tier 2. The new regime applies regardless of tier, but principal contractors and Tier 1 contractors are most exposed.
The ten-digit reference HMRC issues to identify each taxpayer. The primary identifier used to verify a CIS-registered subcontractor against HMRC's systems.
The reference HMRC issues when a contractor verifies a subcontractor through the CIS Verification Service. Confirms the subcontractor's identity and registration status as at the date of verification.
The check that a subcontractor's VAT registration is current. From April 2026, Tax Radar runs VAT verification alongside CIS verification, because VAT deregistration is a leading indicator of subcontractor distress and fraud.
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This glossary is for information only. Definitions are written in plain English for working use; the legal definition of any term is established by statute and case law. Where a specific issue affects your business, consult a qualified tax adviser.
Last reviewed: 27 May 2026