What contractors and subcontractors should be aware of
At Autumn Budget 2025, the UK Government announced a new technical consultation proposing targeted amendments to the Construction Industry Scheme (CIS). These changes are intended to simplify certain administrative aspects of the scheme and reduce avoidable errors.
The proposals have been published in draft form and, if adopted, are expected to come into force from 6 April 2026. While the legislation has not yet been finalised, construction businesses may wish to understand what could be changing and how this might affect them in practice.
Why changes are being considered
The CIS governs how contractors deduct tax from payments to subcontractors in the construction sector. It acts as an advance payment mechanism for Income Tax and National Insurance. Contractors deduct tax unless the subcontractor holds Gross Payment Status (GPS).
In Autumn Budget 2025, the government committed to reviewing and simplifying elements of the CIS regulations. The current draft amendments focus on modernising parts of the Income Tax (Construction Industry Scheme) Regulations 2005, rather than introducing fundamental reform.
Key proposed changes (if brought into law)
1. Exempting payments to public bodies and local authorities
One of the most significant changes proposed is the exemption of payments made to public bodies and local authorities from the scope of the CIS.
Historically, HMRC used an Extra Statutory Concession to treat public bodies as if they held GPS, preventing unnecessary deductions. This concession will now be formalised and replaced with Regulation 24ZA, which fully removes these payments from CIS altogether.
In practical terms, this could mean:
- No CIS deductions on payments to qualifying public bodies
- No CIS reporting required for those payments
- Greater certainty for contractors working directly with public sector clients
2. The requirement for contractors to file ‘NIL’ returns may be reinstated
The requirement for contractors to submit monthly ‘NIL’ returns (where no subcontractor payments were made) was abolished in 2015. However, HMRC found that removing this requirement increased erroneous late filing penalties and did not in fact reduce administrative burdens.
To address this, the consultation proposes re‑introducing mandatory NIL returns, requiring construction contractors to file a nil return when they have not paid any subcontractors in a month, unless the contractor has pre‑notified HMRC in advance that no such payments will be made for that month.
As part of this change, HMRC are proposing to amend Regulation 4 of the CIS regulations to ensure that failure to file a nil return as required under the new regulation 4(9B) will be subject to penalties.
What this means in practice:
- If you pay no subcontractors in a month and haven’t told HMRC in advance, you’ll need to submit a nil return
- If you inform HMRC in advance that there will be no payments, you won’t need to file a nil return for that month
Clearer compliance expectations, but a greater need for consistent internal controls.
Who is it likely to affect?
- Mainstream contractors: You’ll likely see fewer CIS steps when working with public bodies and more predictable filing rhythms with nil returns. Prepare your internal processes now so monthly reporting doesn’t get missed.
- Deemed contractors (i.e. non-construction businesses who breach the £3 million CIS spending threshold): The return of nil returns may increase touchpoints with HMRC unless you set up a robust pre‑notification routine for months with no subcontractor payments.
- Subcontractors: This consultation doesn’t change your gross payment status rules, but it could reduce processing delays and confusion where public bodies are involved. Keep records clean and ensure your status is current to avoid unexpected deductions.
Key dates and documents
- Consultation opened: 6 January 2026
- Closes: 11:59pm, 3 February 2026
- Intended start date of changes: 6 April 2026
- Draft regulations: Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026 (with explanatory note) available via the HMRC consultation page.
What businesses may wish to do now
Although the changes are not yet law, businesses may find it helpful to begin early consideration and awareness planning, particularly if the April 2026 start date is confirmed following the closure of the consultation.
Possible preparatory steps include:
- Identifying whether you make payments to local authorities or public bodies
- Reviewing how months with no subcontractor payments are currently tracked
- Considering whether systems and software could support nil return submissions if required
- Making finance and payroll teams aware that CIS processes may need tightening
- Reviewing past CIS penalty issues to identify areas of risk
At this stage, the proposals should be treated as potential upcoming changes to be aware of, rather than confirmed requirements. Understanding what may be coming — particularly around the return of nil returns — should help contractors and subcontractors avoid disruption if the changes are implemented from April 2026.
If you wish to discuss these changes or any other CIS related queries, get in touch with a member of our construction team below.
For further information around how we can help, head to our Construction page.
