HMRC has cancelled my CIS gross payment status: can I challenge it?

Yes. You can appeal against the cancellation of your gross payment status under section 67 of the Finance Act 2004, but the notice of appeal must be given to HMRC within 30 days of the cancellation and must state why you say the cancellation was wrong. If HMRC used the new fraud-linked power in section 66(3A), the cancellation took effect immediately and your appeal does not restore gross payment status while it is running, so the first few weeks matter most.

The people asking are usually contractors and subcontractors who have just been told by a client that every payment will now suffer a deduction. What surprises them is that HMRC does not have to show they were dishonest. Since 6 April 2026 the question is what you knew or should have known about somebody else’s deliberate failure, the same territory as the knowledge tests used in MTIC fraud accusations.

What changed on 6 April 2026

Section 220 of the Finance Act 2026 inserted sections 62A to 62C into the Construction Industry Scheme provisions of the Finance Act 2004 and added a new subsection (3A) to section 66, with effect from 6 April 2026 under section 222(1). Section 66(3A) provides that “The Commissioners may at any time make a determination cancelling a person’s registration for gross payment if” section 62A or section 62B “applies to the person.” Many summaries describe this as an amendment to section 66(3). In fact section 66(3) survives in its earlier form and the new power sits beside it. Our guide to HMRC compliance checks and your rights covers the enquiry stage that usually comes first.

Section 66(3) still lets HMRC cancel where it suspects you registered on false information, made a fraudulent return or knowingly failed to comply. That power looks at your own conduct. Section 66(3A) looks at your knowledge of a failure by someone else in the chain, which is why businesses with compliant payrolls now receive cancellation notices, much as labour and payroll supply chains have faced VAT fraud allegations for years.

Sections 62A and 62B: the two routes into the new power

Section 62A applies to a person who has made a payment under a construction contract and, before making it, “knew or should have known that a connected party had deliberately failed, or would deliberately fail” to deduct a sum under section 61, pay a sum to HMRC under section 62, or deduct or pay an amount under PAYE regulations. Under section 62A(3) a connected party is another party to the same construction contract, or a party to another construction contract relating to the same construction operations. The test reaches up and down the chain, and the PAYE limb means a labour supplier’s failures on its own payroll can be enough, as our page on PAYE investigation disputes explains.

Section 62B is aimed at the subcontractor who makes a return treating a sum as deducted and paid on account of its liabilities when it knew or should have known that the sum had not been deducted, or had deliberately not been or would deliberately not be paid over. Both sections turn on a deliberate failure by someone, and our explanation of how HMRC classifies careless and deliberate behaviour is useful background, because the statute requires that deliberate failure as well as your knowledge of it.

Is the cancellation immediate?

It depends on which subsection HMRC used. A cancellation under section 66(1), the ordinary compliance route, takes effect at the end of a prescribed period, which regulation 26 of the Income Tax (Construction Industry Scheme) Regulations 2005, SI 2005/2045, sets at 90 days from the notice. Section 67(5) then postpones it until any appeal is abandoned or determined. A determination under subsection (3) or (3A), by contrast, means the registration “is cancelled with immediate effect” under section 66(4), and section 67(5) refers only to section 66(1). Our article on paying disputed HMRC debts while you appeal deals with the same cash squeeze in another setting.

Section 66(5) requires HMRC to “without delay give the person notice stating the reasons for the cancellation.” Those reasons fix the case you have to answer. Clients sometimes ask whether judicial review can fill that gap, but as our judicial review page explains, it is generally only available where there is no adequate alternative remedy.

Five years on payment under deduction

Section 66(7) as amended provides that after a cancellation under subsection (3) or (3A) you “may, if the Commissioners think fit, be registered for payment under deduction”, and you “may not, within the period of five years beginning with the day on which the cancellation takes effect”, apply again for gross payment. Article 2 of SI 2007/46 sets the deduction at 20% where you are registered for payment under deduction and 30% where you are not. Losing a fifth or more of each payment can exhaust working capital within weeks, so we often look at time to pay arrangements with HMRC alongside the appeal itself.

Most commentary misses a transitional point. Section 222(2) of the Finance Act 2026 provides that the five-year bar applies to a section 66(3) cancellation only where the determination is made by reference to behaviour occurring on or after 6 April 2026. Where HMRC relies on older behaviour under section 66(3), the former section 66(8) applied a one-year bar. If the notice does not say which subsection was used, ask, and raise the point in your grounds before the First-tier Tax Tribunal.

How an appeal under section 67 works

Section 67(1) allows a person aggrieved by the cancellation of registration for gross payment to appeal by notice. Section 67(2) requires the notice to be given to HMRC “within 30 days after the refusal or cancellation”, and section 67(3) requires it to state your reasons for believing that your registration “should not have been cancelled.” The grounds should engage with each element of section 62A or 62B: whether there was a deliberate failure at all, whether the other party was connected, and what you knew or should have known when you paid. Our page on HMRC tax appeals sets out how we prepare grounds.

Section 67(4) provides that the tribunal’s jurisdiction on an appeal notified to it “shall include jurisdiction to review any relevant decision taken by the Board of Inland Revenue in the exercise of their functions under section 63, 64, 65 or 66.” In our reading, that lets the tribunal examine whether HMRC was entitled to make the determination at all. These appeals turn on facts, so the quality of the witness statements in your HMRC appeal usually decides the outcome.

The 20% charge and the separate appeal it carries

Under section 62A(2) an officer may also determine that you are liable to pay HMRC an amount equal to 20% of the payment in question, and under section 62B(2) the liability equals the sum your return treated as paid. Regulation 13A of the 2005 Regulations, inserted by section 221 of the Finance Act 2026, applies Parts 4, 5, 5A and 6 of the Taxes Management Act 1970 as if the determination were an assessment to income tax, “except that the amount determined is due and payable 14 days after the determination is made.” That short window catches many businesses out, and our guide to negotiating with HMRC before a winding up petition is issued explains why engaging early matters.

Because Part 5 of the 1970 Act applies, our view is that the determination is appealed like an assessment: notice in writing within 30 days of the notice of assessment under section 31A(4), stating the grounds under section 31A(5). A postponement application can be made to HMRC under section 55(3) within 30 days, with a referral to the tribunal if it is not agreed. Two appeals therefore run in parallel. If either deadline has already passed, read our article on late appeals against HMRC before giving up.

What does “should have known” mean here?

The wording comes from VAT fraud law. As our note on the Court of Appeal decision in Mobilx, Blue Sphere and Calltel records, the Court of Appeal held in Mobilx that the question is whether a trader should have known its transactions were connected to fraud, not whether that was merely more likely than not, and that HMRC bears the burden of proving the trader’s knowledge. Our longer analysis of Mobilx and the Kittel principle sets out the reasoning.

Whether the tribunal will read sections 62A and 62B the same way has not yet been tested, and the CIS wording adds the requirement of a deliberate failure. VAT cases show how much turns on evidence. In Red Rose Payroll Ltd v HMRC, as our report on the £9.3m Kittel case explains, the First-tier Tribunal dismissed over £9 million in VAT assessments and penalties because HMRC failed to prove the company knew or should have known of the connection to fraud.

Penalties of up to 30% and personal exposure for directors

New section 72A provides that a person is liable to a penalty “not exceeding 30% of any amount that they are determined to be liable to pay under section 62A” or 62B. Under section 72A(2) HMRC may determine it up to three years after the section 62A or 62B determination becomes final, so the risk outlasts the appeal. Our overview of HMRC penalty regimes sets it in context.

Section 72B allows HMRC to make an officer of a company liable for such portion of the company’s penalty, up to 100%, as it specifies in a decision notice, where the company’s actions were attributable to that officer. “Officer” includes a director and a shadow director. HMRC must first allow representations, the specified portion is payable within 30 days, and section 72C gives the officer 30 days to appeal, including on the ground that the company is not liable at all. The mechanism resembles the personal liability notices covered in our 2026 guide for directors on personal liability notices.

The evidence that answers HMRC’s case

HMRC will build its case from what it says were warning signs: new subcontractors with no trading history, rates that could not lawfully cover labour costs, payments routed to third parties, or a labour supplier that changed company every few months. Your answer is the record of what you checked and when. Verification records, contracts, site attendance data and correspondence about rates all go to what you should have known. If HMRC asks for documents first, our guide to HMRC information requests and how much you must disclose explains what a Schedule 36 notice can and cannot require.

Some cases settle once HMRC sees the full documents. Whether HMRC will agree to mediation in a fraud-linked case depends on the facts, and our article on alternative dispute resolution with HMRC explains how the process works.

Gross payment status, VAT numbers and the annual review

Gross payment status is a registration under section 63 of the Finance Act 2004 and is separate from your VAT number, although section 66(3)(b)(iv) now refers to VAT obligations and HMRC sometimes pursues both together. If HMRC has also cancelled your VAT registration, that is a separate decision with its own appeal, covered in our guide to VAT de-registration appeals.

The second confusion is between the new fraud-linked power and the ordinary compliance route. A business HMRC says has failed to comply with the scheme, for example by filing returns late, is cancelled under section 66(1), keeps its status during a timely appeal and faces a one-year bar. A section 66(3A) cancellation is immediate and carries five years. Advice written for one rarely fits the other, and our guide to HMRC compliance checks covers the ordinary route.

Deadlines that decide your position

The governing deadline is the 30 days under section 67(2) for appealing the cancellation, counted from the cancellation itself. A section 62A or 62B determination is payable after 14 days, with 30 days to appeal under section 31A and to seek postponement under section 55(3). A director who receives a decision notice has 30 days under section 72C. HMRC or the tribunal may accept a late appeal, and our note on late tax tribunal appeals after Medpro and Martland explains the test, but permission is never guaranteed.

The commercial clock is often shorter than the legal one. A business suffering deductions at source can fall behind on its own PAYE and VAT within a quarter, and HMRC then has a debt it can enforce. Our guide to construction insolvencies and winding up petitions explains what happens if the cash runs out before the appeal is heard.

When the problem started with your adviser

Some cancellations follow supply chain checks that an accountant or payroll provider was engaged to carry out and did not. Keep the engagement letter and correspondence, because a claim against the adviser may recover losses you cannot defeat on appeal. Our guidance on whether you can claim when an accountant failed to warn about a tax liability and on the limitation period for a professional negligence claim explains the time limits that apply.

How We Can Help

We act for contractors, subcontractors and their directors in appeals against the cancellation of gross payment status, section 62A and 62B determinations, section 72A penalties and section 72C appeals against decision notices, from the first response to HMRC through to a hearing in the First-tier Tribunal. We do not handle routine CIS registrations or monthly returns, we do not offer free legal advice or legal aid, and we generally take on substantial matters where the sums at stake justify specialist litigation, as our page on HMRC tax investigations explains.

We are dual qualified solicitors and barristers with chambers in Middle Temple, next to the Royal Courts of Justice. We offer a fixed fee advice conference with both a solicitor and a barrister, at which we review the cancellation notice, any determination and your evidence, and give you a view on merits and next steps. To start, complete our case assessment form.

This article is for general information only and does not constitute legal advice. The law is stated as at November 2026. You should take specific legal advice on your own circumstances before acting or refraining from acting.