From April 2026, HMRC’s new CIS anti-fraud powers significantly increased the risk for principal contractors. Businesses can now face serious consequences where tax fraud exists within their labour supply chain and HMRC believes they knew, or should have known, that non-compliance was taking place.
What’s at Stake?
The new rules are not just about recovering unpaid tax. Contractors could face:
- Immediate loss of Gross Payment Status (GPS) and a potential five-year ban on reapplying
- HMRC determinations of up to 20% of affected payments
- Additional penalties of up to 30%
- Personal liability for directors and officers
- Increased regulatory scrutiny, reputational damage and cash flow challenges
For many businesses, losing GPS could significantly impact competitiveness, profitability, and the ability to win future work.
The Visibility Gap
Most contractors have a reasonable understanding of their direct subcontractors. Far fewer have visibility of the businesses, labour providers and workers operating further down the supply chain.
The key question is simple:
You know who you engaged, but do you know who is actually delivering the work?
HMRC Wants Evidence
Contractual terms and supplier declarations alone will not be enough. HMRC expects contractors to demonstrate active supply chain oversight, including:
- Robust due diligence processes
- Identification and investigation of risk indicators
- Ongoing monitoring throughout project delivery
- Clear governance and documented decision-making
Common Warning Signs
HMRC is likely to focus on arrangements involving:
- Rates that appear too good to be true
- Multiple layers of subcontracting
- Unusual payment structures
- Inexperienced or newly appointed directors
- Lack of contracts, insurance or commercial substance
- Phoenix-style businesses and opaque structures
What Should Construction Businesses Do Now?
Contractors should be taking practical steps now to strengthen supply chain oversight and demonstrate reasonable care. Key actions include:
- Map your labour supply chain to understand who is ultimately delivering work, not just who you contract with.
- Review and strengthen due diligence processes for subcontractors and labour providers.
- Identify and investigate red flags such as unusually low rates, complex subcontracting structures or unusual payment arrangements.
- Monitor suppliers throughout projects, rather than relying solely on checks at onboarding.
- Document decisions, checks and risk assessments so you can evidence your approach if challenged by HMRC.
- Assign clear ownership for supply chain compliance and ensure governance processes are regularly reviewed.
Key Takeaway
The compliance landscape has changed. Contractors can no longer rely on assumptions or paperwork alone. Businesses that can demonstrate genuine visibility, oversight and control across their supply chain will be best placed to protect their GPS status, avoid penalties and withstand HMRC scrutiny.
