THE PROPERTY FILTER TAKE
HMRC published factsheet CC/FS96 on 15 September 2026. The penalty power is section 72A of the Finance Act 2004, and it reaches only payments made, or CIS credits claimed, after 6 April 2026. The determination behind it is made under section 62A or 62B.
The penalty is 30% of the determined amount. HMRC's own example: a £1,000 determination gives a £300 penalty. A company officer may be liable where the actions that led to the penalty were attributable to them.
Consider checking whether the builders you pay on a refurb put you inside the scheme, and speak to your accountant about your contractor status.
HMRC can charge a penalty of 30% of the determined amount where it has issued a Construction Industry Scheme determination. The penalty power sits in section 72A of the Finance Act 2004, and it reaches payments made, or CIS credits claimed, after 6 April 2026. The determination behind the penalty is made under section 62A or 62B of the same Act. The rate is set out in HMRC factsheet CC/FS96, published on 15 September 2026. The Construction Industry Scheme, or CIS, is the system under which contractors deduct money from a subcontractor's payments and pass it to HMRC (GOV.UK CIS guidance).
When can HMRC charge the 30% penalty?
On my reading, the wording is narrow. HMRC says it "may charge a penalty if a person or company makes a payment for construction operations, or claims a CIS credit in a return". The penalty bites where that person "knew or should have known it was linked to deliberate non-compliance by a connected party" (CC/FS96, 15 September 2026). It applies where HMRC has already issued a determination under those two sections, which sets it apart from the routine late-return regime. The factsheet also sets a start line. A penalty can be charged under section 72A of the Finance Act 2004 on payments made, or CIS credits claimed, after 6 April 2026.
The factsheet says the amount of the penalty will be 30% of the determined amount. HMRC gives a worked example: if the determination was for £1,000, the penalty would be £300. HMRC adds that it will send a notice of penalty determination. That notice sets out how much the penalty is, how it has been worked out, how to pay it and what to do if you disagree. On that last point, the factsheet allows 30 days from HMRC's notification.
Reductions are available. According to CC/FS96, the reduction depends on whether you make full and meaningful admissions that save HMRC time and effort, whether you accept its findings, and how early you co-operate. Prompt co-operation earns more penalty reduction than late co-operation, in HMRC's words. There is also personal exposure, and the factsheet sets two conditions that must both be met. The company has to be liable to a penalty on the amount HMRC determined was connected to deliberate non-compliance under section 62A or 62B. The actions that led to the penalty also have to be attributable to that officer. The factsheet adds that if the company pays the penalty in full, HMRC will not ask individual officers to pay. If you hold projects through a limited company, the business and systems section of our blog covers how investors structure and run those companies.
Who counts as a CIS contractor?
This is the part that catches property people. GOV.UK's CIS guidance says you count as a contractor if "you pay subcontractors for construction work". There is a second route in. It applies to a business that "does not do construction work" but has "spent more than £3 million on construction in the 12 months since you made your first payment". My reading is that the first test is the one most investors meet, well before the spending figure.
On the mechanics, GOV.UK says a contractor must register for CIS before taking on a first subcontractor. A contractor also has to check that subcontractors are registered, file monthly returns and keep full CIS records. GOV.UK says you will usually need to make deductions from subcontractors' payments. Payment to HMRC is due every month by the 22nd, or the 19th if you are paying by post. On jurisdiction, this is an HMRC scheme keyed to construction work done in the UK. The same guidance says the rules apply even to a business based outside the UK working as a contractor or subcontractor here. If the admin side is new to you, our free property investor resources are a starting point.
What this means if you are converting HMOs
GOV.UK lists alterations, repairs, decorating and installing systems for heating, lighting, power and water as construction work. Much of a typical conversion sits on that list. Take a three-bed terrace to a six-bed HMO (house in multiple occupation, a property let to several unrelated tenants who share facilities). That means plumbers, electricians, joiners and a fire safety contractor. If you pay those trades directly rather than through a main contractor, the contractor test in GOV.UK's CIS guidance looks likely to be met on those facts.
Nothing in CC/FS96 changes deduction or licensing rules. It is a penalty factsheet dealing with one situation. It is worth your time for the connected party test, which asks what you knew about the people you paid.
If you are pricing a conversion, the compliance overhead is worth weighing in the appraisal alongside the build cost. Our free HMO valuation calculator handles the commercial valuation once the property is let. You may wish to raise your contractor status with your accountant before the next project starts. For where conversions sit against other approaches, see our property investment strategies articles.
Key takeaways
HMRC factsheet CC/FS96, published on 15 September 2026, sets the penalty at 30% of the determined amount. HMRC charges it under section 72A of the Finance Act 2004, on payments made, or CIS credits claimed, after 6 April 2026. The determination behind it is made under section 62A or 62B. HMRC's example: a £1,000 determination gives a £300 penalty.
The penalty applies where someone made a payment for construction operations, or claimed a CIS credit in a return. That person must have known, or should have known, of a link to deliberate non-compliance by a connected party.
A company officer may be liable to pay some or all of the company's penalty, where the actions that led to it were attributable to that officer. If the company pays the penalty in full, HMRC will not ask individual officers to pay.
The factsheet allows 30 days from HMRC's notification if you disagree with a penalty determination.
You count as a CIS contractor if you pay subcontractors for construction work, according to GOV.UK guidance. A second test catches businesses outside construction that have spent more than £3 million on construction in 12 months.
Frequently asked questions
What is the Construction Industry Scheme?
How much is the penalty under factsheet CC/FS96?
Does CIS apply to a landlord refurbishing an HMO?
Can a company director be made personally liable?
How long do I have if I disagree with the penalty?
