The government has announced a major clampdown on CIS fraud within supply chains with tough new powers for HMRC. 

These include instant loss of gross payment status for at least five years for any business that knew – or should have known – it was using a labour supplier involved with fraudulent transactions. Directors will also face personal penalties of up to 30 per cent of evaded tax. 

The measures take effect from April 2026 and are expected to recover £205m in the first year.

Hudson Contract has long warned of fraud risks and urges construction firms to carry out due diligence on their payroll providers and supply chain. 

Earlier this year, seven individuals were imprisoned for orchestrating a £22 million CIS fraud scheme involving commercial contractor payroll firms. A construction company director who profited with kickbacks from the arrangement was convicted alongside them. 

The key principle in that case and the new powers for HMRC are that ignorance is no defence.

Ian Anfield, managing director of Hudson Contract, said: “The increased powers for HMRC signal that time is running out for fraudsters and those who profit from using them. 

“As a matter of urgency, construction firms should verify their payroll providers' VAT status and question any arrangement where fees seem too good to be true, credit terms are unrealistic, or cash-backs and volume rebates are offered.”

Red flags include payroll providers offering free credit, free insurance, or suspiciously low fees, or misrepresenting themselves as commercial contractors to avoid VAT. 

Mr Anfield added: "If otherwise well-run firms have already fallen into this trap, now is the time to get out while they still can.”

Hudson’s free CIS Health Check & Supply Chain Audit gives peace of mind and protects your business from compliance risks. Book a review with one of our experts on 01262 401040.