title: "The CIS Change That Could Make You Personally Liable — 9 Days Away" slug: cis-personal-liability-april-2026 date: 2026-03-28 sector: construction tags: [CIS, HMRC, personal liability, Kittel principle, construction, compliance, April 2026, GPS, nil returns] description: "From April 6, HMRC can pursue construction company directors personally for supply chain tax failures. The 'Kittel principle' is coming to CIS — and almost no one in the sector knows about it. Here's what you need to act on in the next 9 days."

The CIS Change That Could Make You Personally Liable — 9 Days Away

From April 6, if your subcontractor is dodgy and you didn't check, HMRC can come after you personally.

Not your company. You. Your personal assets.

This isn't a hypothetical. It's a change HMRC is making to the Construction Industry Scheme that takes effect in nine days — and the awareness in the sector is almost zero. If you run a construction company, employ subcontractors, or manage supply chains, you need to understand what's changing before April 6.

The Kittel Principle: What It Is and Why It Matters

The "Kittel principle" sounds like legal jargon. In practice, it's the rule that says: if you knew or should have known that a supplier was involved in tax fraud, you lose any VAT reclaim connected to that supply — and you can be held personally responsible for the lost tax.

It was developed in EU tax law and has been used by HMRC in VAT fraud cases for years. The landmark cases involved sophisticated VAT carousel fraud, but the principle has expanded steadily.

From April 6, HMRC is applying the same logic to the Construction Industry Scheme.

What this means for construction directors: if a subcontractor in your supply chain is non-compliant with CIS — and HMRC determines you "knew or should have known" — you can face a 30% penalty on the lost tax, and that penalty is recoverable from you personally.

This isn't the company's problem to absorb. It's yours.

What "Knew or Should Have Known" Actually Means

This is the part that catches people out. You don't have to have been actively complicit. You don't have to have turned a blind eye deliberately.

HMRC's test is objective: would a reasonable business operator, taking proper steps, have identified the red flags?

Red flags HMRC will look for include:

Bank account changes shortly before payment — a subcontractor suddenly asking you to pay a different account is a known fraud indicator
Below-market quotes — if the price seems too good to be true, HMRC may argue you should have questioned it
VAT registration gaps — subbies who invoice with VAT numbers they shouldn't have, or who can't produce a valid VAT registration
CIS verification failures — subbies you haven't verified through HMRC's scheme, or whose verification status has changed
Shell company structures — companies incorporated recently with no real operational history
Nil or zero accounts at Companies House — active trading companies that file dormant accounts

None of these individually proves fraud. But any of them should prompt deeper due diligence — and if they're present and you didn't investigate, HMRC will argue you "should have known."

The GPS 5-Year Bar: Cash Flow Math That Changes Everything

Alongside the personal liability change, HMRC is extending the Gross Payment Status suspension from 12 months to 5 years.

If you're not familiar: Gross Payment Status is the right to receive CIS payments without tax deductions at source. For a subcontractor, GPS means getting paid in full — rather than having 20% (or 30% if unverified) withheld by the contractor.

GPS loss has always been painful. A 12-month ban was manageable. A 5-year ban is potentially catastrophic.

The cash flow maths for a £1 million turnover subcontractor:

Without GPS: 20% withheld on every payment = £200,000/year tied up in withholdings
Over 5 years: £1,000,000 in deferred cash, recoverable only through annual self-assessment
Real-world impact: inability to pay wages, materials, or VAT on time; likely insolvency

For the main contractor: if a subcontractor loses GPS status and you didn't notice their verification status had changed, you may have been making gross payments illegally — another HMRC compliance failure on your ledger.

The lesson: verify subcontractor status regularly, not just at onboarding. A subbie who was GPS-approved six months ago may not be today.

Nil Returns: The Trap Nobody Talks About

HMRC is reinstating mandatory CIS nil returns from April 6.

The background: CIS contractors are required to file monthly returns showing deductions made from subcontractors. Nil returns — filed in months where no payments were made — were previously mandatory but were quietly de-emphasised. Many contractors stopped filing them, and HMRC's systems largely didn't chase.

From April 6, that changes. Nil returns are mandatory again, and automatic penalties apply for missing them.

The penalty structure:

One month late: £100
Two months late: £200
Three months or more: £300 per month, plus daily penalties in serious cases

For contractors who've got out of the habit of filing nil returns — and there are tens of thousands — this is an easy £1,200+ annual penalty bill, building quietly in the background until HMRC catches up.

The fix is simple: set a recurring calendar reminder for the 19th of each month to check whether a CIS return is due, and file nil if no payments were made.

Five Things to Check Before April 6

With nine days left, here's where to focus:

1. Audit your active subcontractor list

For every subcontractor you've paid in the last six months, verify their CIS status through HMRC's online service. Check: are they verified? What deduction rate applies? Has their GPS status changed?

2. Review recent bank account changes

If any subcontractor has asked you to change their payment details in the last 12 months, document the request, the date, and what verification you performed. If you can't — do it now retrospectively.

3. Check your nil return filing history

Log in to HMRC's CIS Online service and check whether you've been filing nil returns in months with no subcontractor payments. If there are gaps, speak to your accountant about voluntary disclosure before April 6 — it reduces penalties.

4. Review your supply chain due diligence process

Do you have a documented process for onboarding new subcontractors? Does it include: CIS verification, Companies House check, VAT registration verification, bank account verification? If not, create one now and apply it going forward.

5. Brief your directors and project managers

The personal liability rule means directors need to be aware. This isn't just an accounting or payroll matter anymore. Anyone who authorises payments to subcontractors needs to understand what due diligence is expected of them.

The Broader April 6 Picture

CIS isn't the only change landing on April 6.

Statutory Sick Pay becomes a day-one right. Paternity leave becomes a day-one right. The collective redundancy protective award doubles. The Fair Work Agency formally launches and takes over NMW and SSP enforcement from HMRC.

For construction businesses, April 6 is the single biggest compliance event since IR35 reform. The difference is that IR35 reform was widely covered. CIS personal liability is not.

That's actually an opportunity as well as a risk. Contractors who get ahead of these changes now — who can demonstrate documented due diligence processes — are significantly better positioned than those who wake up to it in May.

Get CIS Alerts Before April 6

ComplianceAlert monitors HMRC CIS guidance, enforcement actions, and regulatory changes for UK construction businesses. When HMRC updates its position on GPS, nil returns, or supply chain liability, you'll know about it before it costs you.

→ compliancealert.co.uk | £19/month

Nine days is enough time to act. Start today.

This post is for informational purposes. For advice specific to your CIS position, speak to a qualified accountant or tax adviser with construction sector experience.