Policy paper

Simplification and administrative improvements to the Construction Industry Scheme

Published 13 March 2026

Who is likely to be affected

Businesses and Public Bodies who operate within the Construction Industry Scheme (CIS).

General description of the measure

The purpose of these measures is to simplify and improve the administration of CIS by:

1. Exempting payments made to local authorities or public bodies from the scope of CIS.
2. Requiring construction contractors to file a nil return when they have not paid any subcontractors in a month. This will prevent HMRC from charging them any erroneous penalties. This will not apply if they have notified HMRC in advance that they will not make any such payments that month.

Policy objective

These measures support the government’s objective to simplify the tax system.

The measure exempts payments to local authorities and certain public bodies from the scope of the scheme, as these bodies were not the intended target of CIS. This allows them to receive payments without contractors making deductions which are withheld.

This measure is designed to improve the administration of the scheme by ensuring only valid late filing penalties are issued.

It does this by reinstating the requirement for construction contractors to file nil returns unless they have not informed HMRC that they would not be paying subcontractors that month.

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

Background to the measure

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, knowing these bodies were not the intended target of CIS, HMRC 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. This measure legislates for this practice, and so allows the Extra-Statutory Concession to be removed.

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.

These measures were first announced at Budget 2025.

Draft regulations were published for technical consultation from 6 January to 3 February 2026. Minor revisions were made to the draft regulations following feedback received.

Detailed proposal

Operative date

The measure will take effect from 6 April 2026.

Current law

You can find the current CIS legislation in:

• Part 3, Chapter 3 and Schedule 11 Finance Act 2004 (FA04)
• the Income Tax (Construction Industry Scheme) Regulations 2005 (S.I. 2005/2045) (CIS Regulations)

Proposed revisions

Powers conferred by section 60(7) and 70 FA04 and section 98A(1) of the Taxes Management Act 1970 are exercised to amend CIS Regulations by adding:

• the nil filing obligation to regulation 4
• a new regulation 24ZA (payments made to public bodies)

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
EMPTY	EMPTY	EMPTY	EMPTY	EMPTY	EMPTY

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event

Economic impact

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

Impact on individuals, households and families

This measure is not expected to impact individuals, households or families, as it only affects businesses. 

Equalities impacts

The majority of CIS contractors are companies. However some of the contractors impacted by this measure will be sole traders. An individual may be affected regardless of their protected characteristics. If a protected group is overrepresented in this population, then it will be disproportionately impacted.

HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure. However, the demographics of self-employed individuals who work in the construction industry were assessed to determine if any protected groups are estimated to be overrepresented. Where this is the case, it is likely they are also overrepresented in the population impacted by this measure. However, estimates are uncertain.

Men are estimated to be highly overrepresented in the self-employed working in construction population (97%) compared to their prevalence in the UK adult population (50%), and individuals of typical working age (25 to 64 years old) are also overrepresented. Individuals from an Any other White ethnic background are estimated to be more than twice as likely to be in the self-employed in construction population (13%) compared to the UK adult population (5%).

Where data was available, no other protected groups were estimated to be overrepresented in the population of self-employed individuals who work in the construction industry.

Impact on business including civil society organisations

This measure impacts construction businesses that are CIS contractors, who have periods where they do not pay any subcontractors. Compliant businesses who already file nil returns will not be impacted by the change.

Requiring a nil return is expected to have a negligible impact on construction contractors within CIS. From April 2026, they will be required to file a nil return, or notify HMRC when they do not pay subcontractors. If they do not do either, where they don’t have a reasonable excuse, a penalty will be due.

One-off costs will include familiarisation with this change. For those businesses that do not currently file nil returns, ongoing costs will include providing HMRC with more information in the form of nil returns. However, there are likely to be ongoing administrative savings for these customers due to a reduction in erroneous penalties being issued. This measure is therefore expected overall to have no impact on businesses’ experience of dealing with HMRC. This measure is not expected to impact civil society organisations.

Exempting payments made to local authorities or public bodies from the scope of CIS is expected to have no impact on these organisations, as they are currently treated as holding gross payment status and there will be no change to their tax administration requirements or processes.

Operational impact (£ million) (HMRC or other)

Reinstating the requirement for contractors to file nil returns will require minor changes to HMRC systems. Costs are estimated to be £80,000. The proposed measures will not have an impact on full time equivalent resource requirements.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

We’ll give consideration to monitoring this measure through data already collected on contractor filing behaviour and penalty volumes.

Further advice

If you have any questions about these changes, contact the CIS Policy team by email at: cisconsultations@hmrc.gov.uk.

Declaration

Daniel Tomlinson MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.