Policy paper

Tackling Construction Industry Scheme fraud

Published 26 November 2025

Who is likely to be affected 

Businesses who operate within the Construction Industry Scheme (CIS) who knowingly enter into transactions connected to fraud will be affected by these measures.  

General description of the measure 

These measures tackle the small minority of businesses who knowingly engage with fraudulent businesses who evade tax. Where it can be shown that a business knew or should have known that they entered into a transaction that was connected with the fraudulent evasion of tax, the measures:  

1. Provide for the immediate cancellation of Gross Payment Status (GPS).

2. Make the business who entered into the transaction connected to fraud liable for the lost tax. 

3. Allows a penalty of 30% of the lost tax to be charged to the business found liable, as well as to its directors and other persons connected to the business.  

The time limit for reapplication where GPS has been immediately removed is also increased from one year to 5 years. The other grounds for immediate GPS cancellation are where a business has provided false information at registration for GPS, has fraudulently made an incorrect return or provided incorrect information, or knowingly failed to comply with a CIS obligation. 

Policy objective 

These measures support the government’s objective to close the tax gap, tackle non-compliance and make the tax system fairer. These measures protect the Exchequer from revenue losses — this will also reduce the large sums of money going to organised criminal gangs involved in supply chain fraud in construction or involving CIS deductions. They also ensure that there is level playing field by preventing fraudulent operators under-cutting the compliant businesses that operate within the rules. 

Changes to this legislation ensures these businesses undertake the necessary due diligence to prevent illegitimate operators from entering the market. Where businesses do knowingly engage in fraudulent supply chains, GPS will be removed immediately and the business will be made liable for the tax losses, and penalties will be chargeable on the business itself and its directors, or other persons connected to the business.  

Background to the measure 

Supply chain fraud relies on businesses within the supply chain entering transactions they know are connected to fraud or ignore clear signs of fraud where there is no other reasonable explanation for the transaction to take place other than it being connected to fraud. These businesses often repeatedly engage with businesses that go missing or default on payments. 

There have been several reforms in recent years to tackle non-compliance within the construction sector. In 2021 changes were made to reduce the abuse of the CIS, and to tackle VAT losses due to supply chain fraud. In 2023, we consulted on measures to further strengthen the scheme and introduced legislation in April 2024 to bolster the GPS tests.  

These powers are helping HMRC tackle fraud and non-compliance within the scheme. However, serious non-compliance in the construction sector continues to develop and remains a significant risk, including sophisticated fraud by criminals. These measures were modelled on VAT countermeasures that have been effective at disrupting supply chain fraud losses. The VAT countermeasures apply to those in the supply chain that have entered transactions that they knew or should have known were connected to the fraudulent evasion of VAT. 

The measure was first announced at Budget 2025. 

Detailed proposal 

Operative date 

 All measures come into effect from 6 April 2026.   

Current law  

The current CIS legislation can be found in Part 3, Chapter 3 and Schedule 11 Finance Act 2004 (FA04) and in the Income Tax (Construction Industry Scheme) Regulations 2005 (S.I. 2005/2045). 

Proposed revisions 

Legislation will be introduced in Finance Bill 2025-26 to amend Part 3, Chapter 3 in FA04 and S.I. 2005/2045. Section 66(3) in FA04 will be amended to provide the power to immediately remove GPS where a business knew or should have known that the payments made or received were connected with fraudulent evasion of tax. 

Section 66(7) of FA04 is amended to prevent re-application for a period of 5 years where GPS is cancelled under Section 66(3) of FA04. 

New legislation will also be introduced in Part 3, Chapter 3 FA04 and S.I 2005/2045 to allow the business that knew or should have known that the payments made or received were connected with fraudulent evasion of tax liable for the lost tax and penalties of up 30% of the lost tax. The officers of the business could also be liable for these penalties.  

Summary of impacts 

Exchequer impact (£ million) 

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
+25	+205	+165	+140	+120	+110

These figures are set out in table 4.1 of Budget 2025 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2025.   

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families 

The measure has no impact on compliant individuals. 

Equalities impacts 

The measures to tackle supply chain fraud are targeted at businesses that knew or should have known that the transaction they were entering into was fraudulent. The majority of those businesses with GPS are companies rather than sole traders and most businesses involved in supply chain fraud are companies. It is therefore not anticipated that there will be disproportionate impacts on those groups sharing protected characteristics. 

Administrative impact on business including civil society organisations

This measure should not impact compliant businesses in the construction industry who undertake the due diligence required to ensure those they contract with in the supply chain are not engaged in supply chain fraud. The measures aimed at tackling supply chain fraud will only impact those who knowingly engage with fraudulent businesses.  

This measure is not expected to disproportionately impact civil society organisations. 

Operational impact (£ million) (HMRC or other) 

The extension of the period a business can reapply for GPS and the new penalties will need changes to HMRC systems. We currently estimate this will cost around £1.1 million. The proposed measures to tackle CIS fraud will not have an impact on full time equivalent (FTE) resource requirements. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

Consideration will be given to monitoring this measure through information collected from GPS removal data and supply chain investigations and kept under review through analysing this data and the impact on fraud.  

Further advice 

If you have any questions about this change, please contact the CIS policy team by email cisconsultations@hmrc.gov.uk.