Construction Industry Scheme proposed simplification and administrative amendments

The government announced at Autumn Budget 2025 a technical consultation on secondary legislative changes to update and simplify the Construction Industry Scheme (CIS), coming into force from 6 April 2026.

The government intends to amend the Income Tax (Construction Industry Scheme) Regulations 2005 (‘the CIS Regulations’) to:

• exempt payments made to local authorities or public bodies from the scope of the CIS
• require construction contractors to file a nil return  when they have not paid any subcontractors in a month, unless they have notified HMRC in advance that they will not make any such payments that month

The final regulations will come into force on 6 April 2026.

On this page, you can read:

• (Draft) The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026
• an explanatory note

The government is seeking technical feedback on the draft regulations, both to ensure that they operate as the government intended, and to identify areas which need further clarification in more detailed guidance.

Exempting payments from the scope of the CIS

The CIS requires contractors to make deductions from payments to subcontractors, and report and pay these over to HMRC, unless the subcontractor holds Gross Payment Status.

As an administrative easement, HMRC, knowing these bodies were not the intended target of the CIS, created an Extra Statutory Concession that allows certain public bodies to be treated as holding Gross Payment Status so they can receive construction contract payments without deductions. 

The draft legislation adds a new Regulation 24ZA (payments made to public bodies) which allows this concession to be removed. The proposed new regulation allows certain public bodies to receive payments without deductions being withheld. It exempts payments to these bodies from the scope of the scheme.

Requiring construction contractors to file nil returns

The requirement for contractors to file nil returns was removed in 2015. We have found that the removal of the nil filing obligation did not reduce administrative burdens for contractors or for HMRC and resulted in erroneous late filing penalties.  

The draft legislation amends Regulation 4 of the CIS Regulations, which sets out what must be included within a contractor monthly return. The proposed change is to reinstate the requirement for construction contractors who have made payments reportable under the CIS to file nil returns unless they have informed HMRC that they would not be paying subcontractors that month. Where contractors have not done either, a penalty will be charged.

Previously, to prevent erroneous filing penalties, contractors had to tell HMRC voluntarily that they would not make subcontractor payments that month. While most contractors filed nil returns or appealed penalties, some did neither, which has resulted in significant penalty related debt, which was not in many cases due.