CIS Supply Chain Liability from April 6 — Your Subcontractor's Fraud Could Cost You Your Business

From April 6, HMRC can hold you personally liable for tax fraud committed by subcontractors further down your supply chain — even if you had no direct involvement. If your subbies are non-compliant with the Construction Industry Scheme (CIS), the consequences now flow upward: to your company, and to you personally.

Most contractors don't know this is changing. With six days to go, here's what you need to understand and what to do about it.

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What Is CIS Supply Chain Liability?

The Construction Industry Scheme (CIS) requires contractors to deduct tax from payments to subcontractors and pass those deductions to HMRC. It exists to prevent tax fraud in construction supply chains — an industry HMRC regards as particularly high-risk.

From April 6, 2026, HMRC is applying a "knew or should have known" standard to supply chain liability. This is not new law exactly — it's a tightening of how existing powers are applied. The practical effect is significant.

What this means in plain English: If a subcontractor in your supply chain is involved in CIS fraud — either deliberately or through shoddy record-keeping — HMRC can now pursue liability upward through the chain. If you engaged that subcontractor and HMRC determines you knew or should have known about the risk, you can be held liable for unpaid tax.

You don't have to be the fraudulent party. You just have to be in the chain.

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Why This Is Different from Before

Previously, CIS fraud liability was largely focused on the individual or company directly committing the fraud. The upstream contractor was usually safe unless they were clearly complicit.

From April 6, "complicit" gets a much broader definition. HMRC's position is that contractors have a due diligence obligation to verify that their subcontractors are CIS-registered and compliant. Failure to perform that due diligence is itself grounds for liability.

The parallels to HMRC's approach to IR35 and national minimum wage are deliberate. The agency has consistently moved toward principal liability — making the business at the top of a supply chain responsible for compliance throughout it.

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The GPS Consequence: A 5-Year Ban

If HMRC finds CIS non-compliance — whether you're the fraudster or a negligent principal contractor — the most severe consequence is Gross Payment Status (GPS) revocation.

GPS allows contractors to receive payments from clients without upfront CIS deductions. It's a cash flow advantage worth thousands per year for most medium-sized subcontractors and contractors.

Lose GPS, and:

• Every payment you receive immediately drops by 20% (the CIS deduction rate)
• The 5-year ban on reapplying for GPS is now confirmed
• Cash flow impact is immediate — from the date of revocation

For a business receiving £500,000 in annual payments, losing GPS means £100,000 per year goes to HMRC upfront rather than at year-end tax settlement. Many smaller contractors cannot sustain that. This is existential.

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Director Personal Liability — This Is Not Just a Company Fine

This is the detail most people are missing.

Director personal liability for CIS fraud is now confirmed. If HMRC finds that a director knew or should have known about CIS fraud in their supply chain, they can be held personally liable — not just the limited company.

That means:

• Personal tax assessments on underpaid CIS deductions
• Director GPS revocation separate from the company's revocation
• Personal credit and financial standing affected
• Potential disqualification in serious cases

The limited company structure does not provide the protection here that directors might assume. HMRC treats CIS fraud as a category where personal accountability is appropriate, and the April 6 changes formalise that.

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NIL CIS Returns: Mandatory from April 6

A separate but related change: NIL CIS monthly returns become mandatory from April 6.

Previously, if you had no payments to declare in a given month, many contractors simply didn't file a return. From April 6, you must file a NIL return for any month with no CIS payments. Failure to file attracts penalties — £100 for the first month, rising to £3,000 for persistent non-filing.

This sounds administrative, but it has a hidden function: HMRC is using NIL return compliance as a filter for GPS eligibility reviews. Contractors who routinely miss NIL returns will be flagged for GPS revocation reviews. It's a low-cost way for HMRC to identify disengaged or non-compliant businesses.

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What "Knew or Should Have Known" Actually Means in Practice

HMRC's standard is not limited to wilful blindness. You don't have to have deliberately ignored evidence of fraud. The standard is whether a reasonably diligent contractor would have identified the risk.

Factors HMRC will consider:

• Did you verify CIS registration before engaging the subcontractor?
• Did you use HMRC's online CIS verification service?
• Did you check for anomalies in the subcontractor's invoices or behaviour?
• Did you have a written subcontractor verification process?
• Did you act when concerns were raised?

If you can answer yes to all of these and have documentation, you have a defence. If you engaged subcontractors informally, verbally, without checking their CIS status — you are exposed.

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What to Do Before April 6

1. Verify every active subcontractor's CIS registration

Use HMRC's CIS verification service at gov.uk. Verify all current subs now. Document the verification with a screenshot or reference number.

2. Review your subcontractor engagement process

Do you have a written onboarding checklist that includes CIS verification? If not, create one. It takes an hour and provides significant legal protection.

3. Check your NIL return compliance

Log into your HMRC CIS account. Have you filed NIL returns for all months with no payments? If not, file them now. The clock starts April 6 but HMRC may review back-history.

4. Brief your accounts team

The person who pays subcontractor invoices needs to know about supply chain liability. If a subcontractor's CIS status looks off or their invoices are inconsistent, escalate — don't just pay.

5. Review sub-tier subcontractors

If your direct subcontractors are themselves engaging further subcontractors, ask them for evidence of their CIS verification process. This is your exposure: fraud two tiers down can still reach you.

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The Construction Accountant Angle

If you use a construction accountant or payroll bureau, call them this week.

Your accountant needs to:

• Confirm your GPS status is current and in good standing
• Review your CIS verification records for the last 12 months
• File any outstanding NIL returns
• Flag any subcontractors whose status looks uncertain

Many construction SMBs pay their accountant specifically to manage CIS compliance. If your accountant hasn't already flagged the April 6 changes to you, that's worth a conversation.

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Key Summary: CIS Changes from April 6

Change	Detail
Supply chain liability	"Knew or should have known" standard applied to principal contractors
GPS revocation	5-year ban on reapplication after revocation
Director personal liability	Confirmed — directors can be personally assessed
NIL CIS returns	Mandatory from April 6 for months with no payments
Penalties	Up to £3,000 for persistent NIL return non-filing

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Frequently Asked Questions

Does supply chain liability apply to me if I'm a sole trader contractor? Yes. The "knew or should have known" standard applies to all CIS contractors, not just limited companies. Sole traders who engage subcontractors and fail to verify their CIS status can be held liable.

I don't have GPS — does this affect me? If you don't have GPS, you're still affected by supply chain liability. You could face additional tax assessments and penalties even without GPS revocation. GPS revocation is the most severe consequence, but it's not the only one.

What if my accountant handles all CIS? Your accountant handles the mechanics, but liability sits with you as the business owner or director. Make sure your accountant has documented CIS verification for all current subcontractors.

How do I verify a subcontractor's CIS registration? Use the HMRC online CIS verification service at gov.uk/verify-cis-subcontractor. You'll need the subcontractor's UTR and name. Keep a record of the verification reference number.

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Published by ComplianceAlert — UK regulatory monitoring for small businesses. compliancealert.co.uk

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