From 6 April 2026, HMRC reinstated a rule that many construction contractors had forgotten about. If your business did not pay any subcontractors in a given tax month, you can no longer simply do nothing. You must either file a nil return or tell HMRC in advance that you will not be paying subcontractors that month. This guide explains what changed, why it matters for your accounts and tax position, and what steps to take to stay compliant.
What Is a CIS Nil Return
A CIS nil return is a monthly submission that confirms a contractor made no payments to subcontractors during a specific tax month. Under the Construction Industry Scheme, contractors must report subcontractor payments and deductions every month, and a nil return is simply the version filed when there is nothing to report. This requirement existed for years but was scrapped in April 2015 to reduce paperwork for busy contractors. That relaxation created a compliance gap that HMRC has now decided to close.
Why HMRC Brought Nil Returns Back
HMRC removed the nil return requirement in 2015 to ease the administrative burden on construction businesses. In practice, the change made it difficult for HMRC to tell the difference between a contractor who was genuinely inactive and one who was simply failing to report. This blurred line was exploited by some businesses to avoid filing altogether, which undermined HMRC’s ability to monitor compliance across the sector. The Autumn Budget 2025 confirmed the reversal, and the measure formally took effect from 6 April 2026 as part of a wider package to simplify and tighten CIS administration.
What Changed From April 2026
Every tax month must now be accounted for in one of two ways. Tax months under CIS run from the 6th of one calendar month to the 5th of the next.
- File a monthly return, even a nil one, showing zero subcontractor payments for that period.
- Submit a pre notification or inactivity request telling HMRC in advance that no subcontractors will be paid that month.
If a contractor does neither, HMRC’s automated systems will issue a penalty without manual review, and there is no scope to argue with the computer generated notice. Alongside this change, payments made to local authorities and certain public sector bodies became fully exempt from CIS from the same date, removing an area of long standing confusion for contractors working on public projects.
Filing Deadlines Contractors Must Know
The deadline for filing a monthly CIS return, including a nil return, is 14 days after the end of the tax month it covers, meaning returns should reach HMRC by the 19th of the following month. For example, payments or inactivity between 6 August and 5 September must be reported by 19 September. Missing this window even by a single day triggers the first automated penalty.
Penalty Structure Contractors Face
The full late filing penalty regime that applied before 2015 has been reinstated in force from April 2026. Because these penalties are generated automatically, prevention through timely filing is far more effective than appealing after the fact.
| Delay | Penalty |
|---|---|
| 1 day late | £100 fixed penalty |
| 2 months late | £200 fixed penalty |
| 6 months late | £300 or 5 percent of the CIS deductions on the return, whichever is greater |
| 12 months late | A further £300 or up to 100 percent of the CIS deductions, whichever is greater |
Contractors can appeal a penalty within 30 days of the notice date, either through HMRC’s online service or in writing, though phone appeals are not accepted. Given the scale of deductions many construction businesses handle, even the lower tier penalties can escalate quickly if several months are missed consecutively.
The Pre Notification Option
Contractors who know in advance that a quiet period is coming can use the pre notification, or inactivity request, to legally pause their monthly filing obligation. This must be submitted at least 14 days before the inactive period begins, and it can cover dormant periods of up to six months. Retrospective inactivity requests are not accepted, so timing is critical, and any contractor anticipating a gap between contracts should build this into their planning calendar. This is particularly relevant for smaller construction businesses and sole trader contractors whose subcontractor use fluctuates seasonally.
Accounting and Tax Implications for Construction Businesses
Beyond the filing mechanics, this change has real consequences for how construction businesses manage their bookkeeping and cash flow. CIS deductions withheld from subcontractors directly affect a contractor’s PAYE and CIS liabilities, and inconsistent monthly reporting can distort year end reconciliations and Corporation Tax or Self Assessment calculations. Contractors holding Gross Payment Status should also treat this as a reminder to keep Self Assessment returns and tax payments up to date, since compliance history now carries more weight under a tighter monitoring regime. Verification records for every subcontractor should be retained as evidence of due diligence, since demonstrating reasonable steps can protect against enforcement action if HMRC queries a return.
Practically, construction businesses should treat this reform as a trigger to formalise processes that may currently be informal.
- Review monthly reporting procedures and confirm who in the business is responsible for filing or notifying HMRC each month.
- Set a recurring reminder ahead of the 19th of each month to avoid missing the 14 day deadline.
- Maintain organised subcontractor verification records, including UTRs, National Insurance or company registration numbers, and verification numbers.
- Reconcile CIS deductions monthly rather than at year end to avoid discrepancies feeding into tax returns.
- Use CIS enabled accounting or payroll software to automate nil submissions where subcontractor activity is irregular.
How Construction Tax Accountants Can Help
Keeping on top of monthly CIS filings while running live construction projects is easy to overlook, and one missed deadline can trigger an automatic penalty with no room for negotiation. Construction Tax Accountants specialises in CIS compliance for contractors and subcontractors across the UK, handling the reporting so nothing slips through the cracks.
- We prepare and file monthly CIS returns, including nil returns, well within the 14 day deadline.
- We manage pre notification and inactivity requests on your behalf during quiet trading periods.
- We reconcile CIS deductions monthly, keeping your Corporation Tax and Self Assessment figures accurate throughout the year.
- We maintain subcontractor verification records to support due diligence if HMRC raises a query.
- We advise on Gross Payment Status applications and ongoing compliance requirements.
- We set up automated reminders and software integrations tailored to your project cycles.
- We represent clients in penalty appeals where a reasonable excuse applies.
Frequently Asked Questions
Do subcontractors need to file nil returns?
No. Nil returns are a contractor obligation only. Subcontractors continue to file their annual Self Assessment return as before.
What happens if I forget to pre notify HMRC before a quiet period?
Retrospective inactivity requests are not accepted, so a nil return must be filed for that month instead to avoid a penalty.
Can I appeal an automated nil return penalty?
Yes, appeals can be made within 30 days of the penalty notice through HMRC’s online service or in writing, though not by phone.
How long can an inactivity request cover?
An inactivity request can cover a dormant period of up to six months before it needs renewing.
Does this change affect payments to local authorities?
Yes. From 6 April 2026, payments to local authorities and certain public bodies are fully exempt from CIS, separate from the nil return rule.
