By Tyra Ali from Markel Tax
Last year the Government’s promised to launch an Employment Status Consultation before the end 2025. The intention was to simplify and finally bring clarity to the ongoing confusion around employment status. The construction industry has needed this for some time mainly because they rely heavily on subcontractors, agencies, umbrellas and complex labour supply chains.
But despite the Government’s commitments the consultation never materialised. It is now expected sometime in early 2026. The delay seems to have been caused by parliamentary focus on the Employment Rights Bill where legislation centred on strengthening worker and employee protections rather than tax. It is important for the construction industry to understand that while the Bill brings further reforms to employment rights it does not simplify the tax rules, align the employment and tax status tests or resolve long‑standing IR35 uncertainty. The Government has indicated that the upcoming consultation will provide clearer employment‑status definitions and improve worker protections, but this may not address tax status and IR35. Even though these are the areas where contractors require the most certainty.
Previous attempts have been made by the government in the past decade to simplify employment status. However, every major attempt has either been postponed, abandoned or added uncertainty. The construction industry is complex. Contractors work on narrow margins and are often dealing with multi-party supply chains and varying types of engagement form employed, to self-employed to limited.
While the employment status position gets pushed back once again new CIS reforms are coming in at speed.
In last year’s budget the government promised to review the administration of the construction industry scheme (CIS) alongside confirmed CIS reforms coming into play in April 2026. These included the return of nil returns, removing certain public bodies from the scope of CIS and the new “knew or should have known” test for supply‑chain fraud. The collective changes signal tightening of CIS administration not just the rules but also how strictly HMRC intends to enforce them. From an adviser’s perspective these developments are not incidental and year on year HMRC has been increasing its scrutiny of the industry and building up to additional responsibility for Contractors. Contractors will be expected to show robust processes are in place along with updated documentation and evidence compliance at every stage. They can no longer rely on outdated procedures.
CIS compliance and Gross Payment Status renewals will be more closely examined by HMRC meaning contractors must prove their processes are watertight or risk losing Gross Payment Status – which not only damages reputation but can be crippling for the cashflow of businesses.
HMRC opened a technical consultation last month outlining several CIS updates to take effect on 6 April 2026. These changes have not been in the headlines but their effect on the contraction industry will be very real. The message from HMRC is clear; more compliance, tighter controls and no room for mistakes. Contractors need to be ready as HMRC is tightens compliance across every part of the labour‑supply chain.
We are already seeing HMRC are carrying out more involved CIS reviews and requests for data. They are digging deeper into records into records and processes and any gaps in deductions, verification or supply‑chain documentation can result in significant penalties.
The new umbrella legislation coming in April will require greater transparency in the labour supply chain as the introduction of joint and several liability means contractors, agencies and end‑clients can now be held responsible for unpaid PAYE and NICs when umbrellas get it wrong. This puts construction businesses under more pressure to know exactly who they are engaging and how those intermediaries operate especially where there are multiple agencies and payroll providers in the supply chain between the worker and end client. The legislation will also capture ‘purported umbrellas’, schemes that look like umbrellas but don’t actually operate PAYE correctly. Contractors using umbrella companies must verify intermediaries and carry out due‑diligence checks to protect themselves from any tax exposure and liabilities that may be owed by a non- compliant Umbrella.
IR35 status and off‑payroll working reviews continue to highlight gaps in labour engagement, pushing contractors to make accurate status decisions or face unexpected PAYE liabilities that can affect project margins if they get it wrong.
HMRC’s “One to Many” nudge campaigns introduced last year is HMRC’s first tap on the shoulder warning contractors to fix issues before an enquiry begins. Ignoring them won’t be a choice which can quickly escalate matters into full‑scale investigations.
Our key message to contractors has always been ensure you are meeting your CIS obligations, tighten your supply‑chain due diligence and make sure your IR35 and labour‑supply arrangements are strong and up to date. This will protect you in the event HMRC come knocking and will ensure you are not needlessly putting yourself at risk. While the pressure to ensure compliance will be increasing in 2026 the cost of getting it wrong has never been higher.
