If you work under the Construction Industry Scheme (CIS), 2026 brings a few changes worth understanding. Some affect the contractors who pay you, and one tightens the rules around the most valuable status a subcontractor can hold.
The headline changes that take effect from 6 April 2026 are administrative: contractors now have to tell HMRC something every month even when they have paid nobody, and payments to local authorities and public bodies drop out of the scheme entirely.
Sitting behind that is the bigger picture from the wider CIS reform, which already pulled VAT into the test for keeping gross payment status and gave HMRC sharper powers to cancel it where fraud is suspected. That is what really matters if you are paid gross.
This guide is for subcontractors, whether you are a sole trader on the tools or running a limited company. We will keep the rates straight, separate what is genuinely new in April 2026 from what changed earlier, and flag the one thing most likely to catch you out. If you want this run for you, that is exactly what we do for CIS subcontractors and contractors.
What is actually changing from April 2026?
There is a lot of noise online about CIS reform, and it helps to separate what genuinely starts in April 2026 from what changed earlier. Two changes take effect from 6 April 2026:
- Mandatory nil returns or advance notification. Contractors must file a monthly CIS return even in months where they have paid no subcontractors, unless they have told HMRC in advance that they will make no payments for a period.
- Local authorities and public bodies out of scope. Payments made to a subcontractor that is a local authority or certain public bodies fall outside CIS from 6 April 2026. This puts a long-standing administrative practice onto a statutory footing.
The other reforms people talk about, adding VAT to the gross payment status test and letting HMRC cancel gross status immediately where it suspects fraud, are real, but they took effect from 6 April 2024, not 2026. They still matter to you every day, so we cover them below, but they are not new this April.
The deduction rates themselves are not changing.
What are the CIS deduction rates for 2026/27?
CIS is not a separate tax. It is a way HMRC collects payments on account of your Income Tax and National Insurance (or Corporation Tax, if you trade through a company) before you ever file a return. The contractor deducts a slice from the labour element of your invoice and pays it to HMRC against your eventual bill.
The rate depends on your status with HMRC. For 2026/27 the rates are unchanged:
| Your CIS status | Deduction taken from labour | What it means |
|---|---|---|
| Registered (net payment) | 20% | You are registered as a subcontractor; the standard deduction applies |
| Not registered | 30% | You have not registered for CIS; a higher deduction applies until you do |
| Gross payment status | 0% | You are paid in full and settle your own tax through Self Assessment or Corporation Tax |
The deduction comes off the labour part of your invoice only. The cost of materials, plant hire, fuel and VAT is excluded from the calculation, so a contractor should not be deducting CIS from those amounts.
If you are sitting on the 30% rate simply because you never registered, that is money tied up with HMRC until you reclaim it. Registering moves you to 20% and is the single easiest win for most new subcontractors.
How do the new nil return rules affect me?
This change lands on contractors, not subcontractors, but it is worth understanding if you also pay subcontractors yourself, because many in construction sit on both sides of the scheme.
From 6 April 2026, a contractor must file a monthly CIS return even in a month where no subcontractors were paid. Previously a "nil" month could simply pass with nothing filed. Now you either submit a nil return or tell HMRC in advance that you expect to make no payments to subcontractors for a set period.
Miss it without a reasonable excuse and you are exposed to the usual CIS late-filing penalties, which start at £100 for a return that is even one day late.
If you are purely a subcontractor and never pay anyone under CIS yourself, this does not add a filing job for you. But it does mean the contractors you work for face a tighter monthly discipline, and a contractor who is sloppy with CIS returns is a contractor whose own compliance record is worth watching, because problems upstream can disrupt your payments.
What does the gross payment status crackdown mean for subcontractors?
Gross payment status (GPS) is the prize. With it, contractors pay you in full with no 20% or 30% deduction, and you settle your tax later through your own return. It transforms cash flow.
To get and keep it, you have to pass three tests set out in HMRC's guidance:
- The business test. Your business does construction work in the UK and is run through a bank account.
- The turnover test. Your construction turnover, excluding VAT and materials, is at least £30,000 (sole trader). Partnerships and companies need £30,000 per partner or director, or £100,000 across the whole business.
- The compliance test. You have paid your tax and National Insurance, and filed your returns, on time.
Here is the part that catches people out. Since 6 April 2024, the compliance test includes your VAT obligations. So a subcontractor who is brilliant with CIS and Self Assessment but lets a VAT return slip late now risks the compliance test for gross status. Minor or occasional slips, and genuine reasonable excuses, are not meant to cost you GPS, but a pattern of late VAT is exactly the kind of thing HMRC can act on.
On top of that, HMRC can now cancel gross payment status immediately where it has reasonable grounds to suspect the holder has fraudulently provided an incorrect return or information across VAT, Corporation Tax, Income Tax Self Assessment or PAYE. That is a much faster, sharper power than the old annual review cycle.
The practical message is simple. Gross payment status is no longer just about your CIS and direct tax record. Every tax you touch, especially VAT, now feeds the same compliance picture. If you hold GPS, treat your VAT deadlines with the same seriousness as your CIS ones. Losing it drops you back to a 20% deduction on every invoice, which is a serious hit to working capital.
Are public bodies really outside CIS now?
Yes, and this is the cleanest of the April 2026 changes. From 6 April 2026, payments made to a subcontractor that is a local authority or a qualifying public body are outside the scope of CIS.
In practice HMRC already treated many of these payments as gross through an administrative easement. The change simply writes that into the rules, removing the concession and the uncertainty around it. It is a tidying-up exercise rather than a new burden.
For most private-sector subcontractors this has no direct effect on your own status. It matters if your supply chain involves a public body as a subcontractor, where CIS no longer needs to be operated on those specific payments.
Illustrative example: protecting gross payment status
Illustrative example. Imagine Marek runs a groundworks business as a limited company and holds gross payment status, so his contractors pay him in full. In 2026/27 he invoices £18,000 of labour to a main contractor.
With gross payment status, the contractor deducts nothing. Marek receives the full £18,000 and accounts for the tax himself.
Now imagine Marek had lost gross status, perhaps after two VAT returns went in late and HMRC removed it at review. He drops to the standard 20% deduction. On that same £18,000 of labour the contractor would deduct £3,600 (£18,000 x 20%) and pay it to HMRC, so Marek receives £14,400 on the day and waits to reclaim or offset the £3,600 later.
The £3,600 is not lost; it counts towards his Corporation Tax. But it is £3,600 of his money sitting with HMRC for months, on a single invoice, repeated across every job. That is the real cost of letting the compliance test slip.
These figures are illustrative. Your own position depends on your turnover, your structure and your compliance record.
For groundworks, scaffolding, electrical, plumbing and similar trades, keeping CIS, VAT and direct tax aligned is exactly the joined-up job we handle for construction subcontractors. If you would rather not police every deadline yourself, that is the point of having an accountant who watches all of them.
Want to make sure your gross payment status is safe and your CIS is filed correctly under the April 2026 rules? Book a free call with a Zmartly accountant and we will review where you stand.
Frequently asked questions
What CIS changes take effect from April 2026?
Two main changes take effect from 6 April 2026. Contractors must file a monthly CIS return even when they have paid no subcontractors, unless they have told HMRC in advance that no payments will be made for a period. And payments to subcontractors that are local authorities or qualifying public bodies fall outside the scope of CIS.
Are the CIS deduction rates changing in 2026?
No. The deduction rates are unchanged for 2026/27. Registered subcontractors have 20% deducted from the labour element, unregistered subcontractors have 30% deducted, and those with gross payment status are paid in full with 0% deducted.
Does VAT now affect my gross payment status?
Yes. Since 6 April 2024, your VAT filing and payment obligations form part of the compliance test for gaining and keeping gross payment status. Minor or occasional failures, and genuine reasonable excuses, should not cost you the status, but a pattern of late VAT returns can put it at risk.
Can HMRC cancel gross payment status immediately?
Yes. HMRC can cancel gross payment status immediately where it has reasonable grounds to suspect the holder has fraudulently provided an incorrect return or incorrect information for VAT, Corporation Tax Self Assessment, Income Tax Self Assessment or PAYE. This is a faster power than the previous review cycle.
What is the turnover threshold for gross payment status?
Your construction turnover, excluding VAT and the cost of materials, must be at least £30,000 for a sole trader. Partnerships and companies need £30,000 per partner or director, or £100,000 across the whole business, to pass the turnover test.
Do the new nil return rules affect me as a subcontractor?
Only if you also pay subcontractors yourself and so act as a contractor under CIS. A pure subcontractor who never pays anyone under the scheme has no new monthly filing job from this change. It does mean the contractors who pay you face tighter monthly filing requirements.
