Construction firms are facing a wake-up call over their labour suppliers as tough new rules hold them to account for CIS fraud in supply chains.

From this month, the measures will target businesses operating within CIS that “knew or should have known” they were entering into fraudulent transactions. 

HMRC will be able to make them liable for lost tax, cancel their Gross Payment Status for five years and levy penalties of 30 per cent on offending companies, their directors and people connected to them. 

The government said the measures would protect the Exchequer from revenue losses, reduce large sums of money going to organised crime groups and ensure a level-playing field by preventing fraudulent operators from under-cutting compliant providers. 

The policy is expected to raise £765m over the next five years. 

The penalties for turning a blind eye are severe. In February 2025, seven members of an organised crime group were jailed after a joint investigation by Kent Police and HMRC found they had pocketed an estimated £22 million in unpaid VAT and CIS payments through a network of front companies.

Hudson managing director Ian Anfield said: “The only test HMRC needs to apply is that you should have known something wasn't right. 

“The signs are usually obvious: if a labour supplier is offering kickbacks or prices that are too good to be true, telling you they don't need to charge VAT because they are a ‘commercial contractor’ or don't need to be reported through CIS, provide unrealistically good credit terms, or if they keep changing their name, these are all red flags. 

“Losing your gross payment status for five years with no right of appeal would be devastating for most construction firms. You’re looking at a 20 per cent hit to your cash flow overnight and that's before any penalties.

“Fortunately, Hudson clients can sleep easy at night knowing they are 100 per cent compliant with all relevant tax and employment law.”

Hudson is offering supply chain due diligence and mock inspections to firms concerned over their arrangements with labour suppliers. The family-owned company is the market leader for CIS compliance and is the only provider of its kind with case law in its name. 

The CIS anti-fraud measures come into force alongside the government clamping down on tax avoidance among umbrella companies by shifting PAYE and National Insurance liabilities to recruitment agencies and even end users, starting this month. 

Hudson is not an umbrella company and is unaffected by this legislation.