The Return of CIS NIL Returns and Key Changes for Contractors in 2026

Alex Seal from Markel Tax discusses the reintroduction of CIS NIL return requirements from April 2026 and what contractors need to do to avoid costly HMRC penalties.

In the Autumn Budget last year, it was announced that there would be a crackdown on CIS compliance to combat CIS fraud.

One of the changes as part of this initiative was the reintroduction of the requirement to submit NIL returns. This used to be the case up until 2015 where the obligation to file NIL returns in months where a subcontractor was not used was removed. This was to help businesses by reducing administrative burden, however, there was an expectation that contractors would advise HMRC they were not engaging subcontractors or file a NIL return, which was voluntary. This didn’t go as smoothly as plans intended and many contractors ended up receiving late-filing penalties because HMRC was unaware they were not engaging subcontractors. This created a bigger administrative burden than the one they were trying to solve as contractors had to appeal the penalties and HMRC having to vacate them.

To tackle this, from April 2026, the requirement to file NIL returns has been reinstated. This means that contractors are now obliged to either file a NIL return in months subcontractors are not used or advise HMRC of periods of inactivity (if it is expected this will be up to 6 months). HMRC must be notified prior to the event and not afterwards as late filing penalties could become payable.

Notification can be provided for periods up to 6 months and HMRC will set a “temporary inactivity signal”. This means that no NIL returns will become due during this period. If it is expected the inactivity period will be longer, then contractors can extend their period of inactivity beyond 6 months. The penalties for non-compliance can be significant starting with an initial fixed penalty of £100. Over a year (based on no returns being filed) the initial fixed penalty amounts to £1,200.

It important to note that the penalties do not stop there and HMRC may impose a second fixed penalty of £200 after 2 months, a minimum £300 or 5% of any liability after 6 months and a further penalty after 12 months based on why the return was late. For a year of no returns this could result in a penalty of at least £7,200 (this takes into account the first 2 fixed and the 6-month penalty).

This ‘new’ requirement could catch construction contractors out where they only have minimal periods of subcontractor activity but it is important to remember that even if you engage subcontractors, for example, 11 months of the year and have 1 month period of subcontractor inactivity then a NIL return is a requirement for the month of inactivity.

If you have any concerns regarding your CIS obligations, it is important you seek professional advice.

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