HMRC Changes CIS Rules to Simplify Construction Transactions

The Construction Industry Scheme (CIS) has seen some important changes since April 2024, with further updates that took effect on 6 April 2026. These changes make the rules around gross payment status, VAT compliance and fraud stricter, while also simplifying some reporting requirements for contractors and subcontractors.

What Changed in CIS Gross Payment Status?

Gross payment status can be valuable for subcontractors because it allows them to receive payments from contractors without CIS deductions being taken upfront. This can help improve cash flow, but the business must still meet HMRC’s qualifying conditions.

To get and keep gross payment status, subcontractors must pass three main tests:

• Business test: The business must carry out construction work, or provide labour for construction work, in the UK and use a bank account for the business.
• Turnover test: The required turnover depends on the business structure. For example, a sole trader generally needs at least £30,000 of qualifying turnover, while different rules apply to companies and partnerships.
• Compliance test: The business must have a good tax compliance record. Since 6 April 2024, HMRC also considers VAT filing and payment compliance when deciding whether gross payment status can be granted or kept.

This means VAT compliance is now more important than ever for subcontractors that rely on gross payment status. Repeated late returns or payments could put that status at risk.

How Does VAT Compliance Affect CIS Gross Payment Status?

Since 6 April 2024, VAT compliance has been part of HMRC’s existing compliance test for CIS gross payment status. This means HMRC looks at whether a subcontractor has kept up with its VAT returns and payments when deciding whether it can obtain or keep gross payment status.

HMRC understands that occasional delays can happen, so certain minor failures may be overlooked. Under the current rules, these include:

• Up to three VAT returns submitted no more than 28 days late.
• Late VAT payments of less than £100.
• Up to three VAT payments of £100 or more, provided each is paid no more than 14 days late.

However, repeated late returns, longer delays or unpaid VAT liabilities can result in a subcontractor failing the compliance test and could put its gross payment status at risk.

How Often Does HMRC Review CIS Gross Payment Status?

Since 6 April 2024, VAT compliance has been part of HMRC’s checks for CIS gross payment status. HMRC normally carries out the first review six months after a subcontractor applies, followed by reviews every 12 months.

If a business does not meet the required standards, HMRC will usually explain the issue and give the business a chance to respond. If HMRC still decides to remove gross payment status, it will normally give 90 days’ notice, and the business has 30 days to appeal.

The rules became stricter from 6 April 2026. In certain cases involving fraud or serious non-compliance, HMRC can remove gross payment status immediately, and the business may be blocked from reapplying for up to five years.

Conclusion

As the CIS rules have become stricter, subcontractors with gross payment status need to keep a closer eye on their VAT and other tax obligations. Gross payment status can help cash flow because eligible subcontractors are paid without CIS deductions, but keeping that status depends on staying compliant with HMRC. VAT has formed part of the compliance test since April 2024, and the rules have become tougher since April 2026 in cases of serious non-compliance and fraud. Keeping your CIS, VAT and other tax affairs up to date is therefore more important than ever.