HMRC is set to unleash a major crackdown on organised CIS abuse after the Chancellor used the Budget to put directors in the firing line for supply chain tax fraud.
The move marks the toughest shake-up of the scheme in two decades and targets firms that turn a blind eye to “too good to be true” operators.
From April 2026, any business judged to have known or should have known it was tied to fraudulent transactions will instantly lose their gross payment status for at least five years. Directors will also face personal penalties as HMRC shifts responsibility straight to the top of the chain.
Under the new regime to be written into the Finance Bill 2025-26 companies engaging with fraudulent labour suppliers will become automatically liable for the lost tax, with penalties of up to 30% of the evaded amount hitting both the business and its directors or connected individuals.
The reforms are designed to choke off organised criminal gangs exploiting CIS deductions through missing traders and contrived supply chains.
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Tax office officials said the powers mirror proven VAT countermeasures that have already cut fraud elsewhere in the tax system.
Compliant contractors and subcontractors are expected to be untouched by the changes, with the Treasury stressing that only those who wilfully engage with fraudulent operators or ignore glaring red flags will be caught by the rules.
The shake-up builds on earlier CIS tightening in 2021 and 2024 and comes amid growing HMRC concern over increasingly sophisticated scams still draining tens of millions from the Exchequer.
The Treasury expects the new measures to raise £205m in 2026/27, tapering to £110m by 2030/31, as gross payment status abuse and supply-chain fraud are squeezed out of the industry.
Draft regulations to simplify and improve CIS administration will also go out for consultation ahead of legislation next year.
