CIS fraud & HMRC’s supply‑chain clampdown

From 6 April 2026, HMRC has fundamentally changed the way it polices CIS fraud. Contractors are no longer judged purely on whether they have complied with CIS mechanically. Instead, HMRC can now penalise businesses that “knew or should have known” that fraud was taking place somewhere in their supply chain – even where they had no direct involvement.

The construction industry has been identified as a priority enforcement sector. HMRC has raised £15bn in compliance revenue in just six months and significantly increased CIS compliance activity. This change is not aimed solely at rogue operators. Well‑run businesses are being caught out by arrangements they believed were acceptable.

New HMRC CIS enforcement powers

HMRC can:

• Cancel gross payment status immediately, with a five‑year reapplication ban
• Transfer liability up the supply chain for tax and NICs unpaid by subcontractors
• Impose penalties of up to 30%, including personal liability for directors

“Knew or should have known”

This is an objective test. HMRC does not need to prove intent. The question is whether a reasonable contractor should have spotted warning signs.

Red flags include:

• Below‑market pricing
• Poor or inconsistent CIS checks
• Subcontractors disappearing after payment
• New or opaque company structures
• Commercial arrangements that make little sense

Due diligence is now critical

Verification alone is no longer enough. HMRC expects documented, ongoing and proportionate due diligence. Where it exists and is followed, it is the main defence. Where it does not, exposure increases significantly.

What should you do now to strengthen CIS compliance?

1. Review subcontractor onboarding
2. Reassess existing subcontractors
3. Document red‑flag escalation
4. Apply a risk‑based approach
5. Review contracts and pricing
6. Train staff and assign ownership
7. Stress‑test your CIS systems as if HMRC were enquiring today

Most CIS cases now start with businesses that did not think they were at risk. A proactive CIS compliance review is now about protecting cashflow, directors and long‑term trading viability.