HMRC has published a technical consultation on proposed amendments to the construction industry scheme (CIS). The first change involves enacting into law an existing extra statutory concession concerning payments made to public bodies, such as local authorities. The second change involves reinstating a requirement for nil returns by contractors, as it appears that the lack of any returns has, in practice, led to the issue of erroneous late filing penalties.
At the Autumn Budget 2025, the government announced its intention to introduce legislative changes to update and simplify some aspects of the CIS. On 6 January 2026, HMRC published draft legislation (The Draft Income Tax (Construction Industry Scheme) (Amendment) Regulation 2026) and explanatory notes along with a short technical consultation on changes to come into effect from 6 April 2026.
The two changes envisaged by the draft legislation are to:
- Exempt payments made to local authorities or public bodies from the scope of the CIS; and
- 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.
Exempting payments to public bodies
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 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 allows this concession to be removed. The proposed new regulation allows certain public bodies to receive payments without deductions by exempting payments to these bodies from the scope of the scheme.
Requiring construction contractors to file nil returns
The earlier requirement for contractors to file nil returns was removed in 2015. HMRC now consider 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. 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 resulted in significant penalty related debt, which was not in many cases due.
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.
