On 6 April 2024, significant changes to the Construction Industry Scheme (CIS) came into effect — quietly reshaping how subcontractors qualify for and maintain Gross Payment Status (GPS).

Under the new rules introduced by The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024, subcontractors must now meet VAT compliance tests — not just income tax and filing obligations — to either gain or retain GPS. This is a notable expansion of HMRC's criteria and could affect thousands of construction businesses, particularly those engaged in supply chains involving specialist contractors, sole traders, and small firms.

At the same time, HMRC has removed most payments between landlords and tenants for construction work from the scope of CIS — part of a broader attempt to simplify the regime and target it more accurately.

What’s Changing?

The two key changes introduced in April 2024 are:

1. VAT Compliance Requirement for Gross Payment Status

Previously, GPS applications were judged based on income tax returns, payment history, and business structure. Now, HMRC also checks for:

• Correct VAT registration and returns
• Payment of VAT liabilities in full and on time
• No evidence of VAT fraud or abuse

This change stems from HMRC’s growing concern over carousel fraud and abuse of VAT structures in the construction sector — particularly among smaller or short-lived entities.

Subcontractors who fail the VAT compliance check may have their GPS revoked, resulting in 20% tax deductions being taken from their invoices — significantly impacting cash flow.

2. Landlord-to-Tenant Construction Payments Removed from CIS

Historically, payments from a landlord to a tenant for construction works (e.g. refurbishment or fit-out during a lease) were caught by CIS. From April 2024, most of these are now excluded, unless:

• The landlord is acting as a developer (with construction as a business activity)
• The tenant is subcontracting work on the landlord’s behalf

This change is aimed at simplifying compliance and removing unnecessary administrative burdens in commercial lease scenarios.

Who Is Affected?

These reforms will directly impact:

• Subcontractors applying for or trying to maintain Gross Payment Status
• Contractors who must verify subcontractors and may now see GPS revoked due to VAT issues
• Developers and landlords engaged in construction activity linked to property leases
• CIS payroll providers and project managers who handle compliance on behalf of construction clients

The biggest risk lies with small and medium-sized subcontractors who are VAT-registered but may have inconsistent filing or payment histories — or who outsource bookkeeping and don’t realise they’re at risk of failing HMRC’s new tests.

Why This Matters to Construction Clients

For contractors and developers, the risks are now twofold:

• 1. Cash flow disruption: Subcontractors who lose GPS will have 20% tax withheld, which can delay project delivery or create disputes over payment.
• 2. Reputational exposure: Engaging subcontractors who are later deemed non-compliant could draw attention from HMRC or even trigger wider supply chain audits.

Practical steps include:

• Conducting GPS checks more frequently, especially before making significant payments
• Asking subcontractors to confirm VAT compliance status
• Ensuring that internal CIS processes are up to date with the new criteria
• Working closely with CIS payroll providers or compliance partners who understand the expanded risks