If you’ve been in the construction game for more than five minutes, you’ll know that checking the calendar on the 6th of April usually feels a bit like checking under the bed for monsters. Every year, HMRC likes to drop a few "surprises" on us, and usually, they involve more paperwork, more rules, and more ways to accidentally get a slap on the wrist.
But hold onto your hard hats, because we’ve just crossed into May 2026, and I actually have some good news. No, I haven't been hitting the celebratory tea too hard: HMRC has actually made life a little bit easier for those of you winning council contracts and working with public bodies.
As part of the wider April 2026 CIS reforms, payments made to local authorities and certain public sector bodies are now officially, legally, and beautifully exempt from CIS deductions. If you’ve spent years scratching your head over whether the local council counts as a mainstream contractor or a deemed contractor, this one is for you.
The "Before Times": A Bit of a Muddle
Before we dive into why this change is such a breath of fresh air, let’s look at the mess we were dealing with before April 2026. Historically, dealing with public bodies under the Construction Industry Scheme (CIS) was a bit of a grey area that relied on something called an "Extra Statutory Concession."
In plain English? That’s basically HMRC saying, "We haven't technically written this into the law yet, but if you treat these bodies as if they have Gross Payment Status, we’ll look the other way and won't make you do the deductions."
While it worked, it was a bit "nudge-nudge, wink-wink." It created uncertainty. Contractors were often left wondering if they were following the rules correctly or if a sudden change in mood at the tax office would result in a penalty. It was a classic case of unnecessary admin and second-guessing. If you’re busy trying to get a site cleared or a foundation poured, the last thing you need is a 40-page guidance document on whether the local leisure centre counts as a "public body."
Enter Regulation 24ZA: Your New Best Friend
Fast forward to April 6th, 2026. HMRC finally decided to stop playing games and formalised the whole thing. They introduced Regulation 24ZA, which officially removes payments to local authorities and public bodies from the scope of CIS entirely.
This isn't just a tweak; it’s a full-on exemption. It means these payments are now legally outside the CIS bubble. If you’re a contractor working directly for a council or a qualifying public organisation, the administrative shackles have been cut.
Why Should You Care? (Beyond Less Paperwork)
I know what you’re thinking: "Claire, it’s just one less form. Does it really matter?"
In the world of construction, time is money. And when you’re dealing with the heavy lifting of outsourced bookkeeping in the UK, every minute saved on compliance is a minute you can spend on your actual job (or, you know, finally having a lunch break that doesn't involve a cold sausage roll over a spreadsheet).
Here’s why this change is a genuine win:
1. No More CIS Deductions
When you work with these qualifying bodies, you no longer have to worry about the faff of CIS deductions on the payments you make to them (if they were acting as a sub-contractor to you) or vice versa. It’s a clean break. The money stays where it belongs, and the "will they, won't they" deduction dance is over.
2. The Reporting Nightmare is Over
If a payment is exempt from CIS, it’s also exempt from CIS reporting. That means fewer entries on your monthly returns and less time spent verifying details that should have been simple in the first place. For those of you juggling multiple council contracts, this could shave significant time off your monthly admin cycle.
3. Clarity and Certainty
There’s nothing worse than the "tax anxiety" of wondering if you’ve ticked the right box. By moving from a "concession" to a formal "regulation," HMRC has given us a solid foundation. You don't have to rely on a "best guess" anymore; the law is now black and white. If it’s a local authority or a qualifying public body, CIS doesn't want to know about it.
Who Counts as a "Public Body"?
Now, before you go assuming that everyone with a fancy desk and a lanyard is exempt, we need to be clear about who falls under this new umbrella. Generally, we’re talking about:
- Local Authorities (your county, district, and borough councils).
- The NHS and various health authorities.
- Government departments and agencies.
- Police and Fire authorities.
Basically, if the taxpayer is footing the bill and the organisation is there to serve the public, it’s likely covered. However, as an AAT Licenced Bookkeeping Practitioner, I always recommend double-checking the status if you aren't sure. It’s better to be safe than to have HMRC knocking on your door in 2027 asking why you stopped reporting on a specific contract.
Part of the Bigger Picture: The April 2026 Reforms
It’s worth noting that this "local authority" win didn't happen in a vacuum. It’s part of a wider package of CIS reforms that kicked in last month. HMRC is on a mission to tighten up the scheme while simultaneously trying to remove the "dead wood" admin that doesn't actually help catch tax evaders.
While they’ve given us this nice exemption for public bodies, they’ve also sharpened their teeth in other areas. For example, they’ve introduced much stricter rules around Gross Payment Status (GPS). They are now looking much more closely at VAT compliance when deciding if a contractor deserves to keep their GPS. If you’re late on your VAT returns, your GPS could be yanked faster than a loose brick in a gale.
This is why we’re seeing a bit of a "carrot and stick" approach. The carrot? No more CIS faff with the council. The stick? If you don't keep your own house in order (VAT, Income Tax, etc.), the consequences are much heavier than they used to be.
How to Make the Most of the Change
If you’re currently working on a public sector contract, or you’ve got a tender in for one, here’s how to handle it:
- Update Your Software: Make sure your accounting software knows that these specific contracts are now exempt from CIS. You don't want your system automatically trying to deduct tax where it’s no longer needed.
- Review Your Sub-Contractors: While the payment to the public body is exempt, remember that your payments to your own sub-contractors on that job are still very much under the CIS spotlight. Don't let the "exemption fever" make you sloppy with the rest of your team!
- Keep Records: Even if you aren't reporting these payments via CIS anymore, you still need to keep clean records of the contracts and payments for your general accounts.
One Important Catch: CIS Might Be Gone, But DRC VAT Hasn’t Packed Its Bags
This is the bit worth circling in red marker: just because CIS deductions no longer apply to local authorities, that does not automatically mean the Domestic Reverse Charge (DRC) for VAT disappears too.
Nice try, but HMRC rarely gives with both hands.
If the work falls within the scope of the Domestic Reverse Charge, you still need to check the VAT treatment properly. The key point is whether the local authority is acting as an end user. If they are, the reverse charge usually won’t apply in the normal way. But don’t assume that just because the client is a council, the VAT sorts itself out by magic. It doesn’t.
To avoid an expensive VAT headache, make sure the local authority confirms their end user status in writing. That way, everyone is clear on whether you should charge VAT in the usual way or apply the reverse charge rules. One missed assumption here can turn into a proper mess later, and nobody wants to spend Friday afternoon untangling a VAT muddle with a cold cup of tea.
So, in short:
- No CIS deductions? Correct.
- No need to think about DRC VAT? Definitely not correct.
- Need end user confirmation from the local authority? Absolutely yes.
Let SBS Essex Take the Weight
We get it. You didn't get into construction because you loved the thrill of tax legislation. You got into it to build things, fix things, and run a successful business. All these changes: Regulation 24ZA, GPS VAT compliance, the return of the Nil Return: can feel like a full-time job in themselves.
That’s where we come in. At SBS Essex Ltd, we live and breathe this stuff so you don’t have to. As an AAT Licenced Bookkeeping Practitioner, we’re not just here to crunch numbers; we’re here to make sure you’re taking advantage of every "win" the government throws your way while staying firmly on the right side of the law.
Whether you need a hand navigating the new 2026 CIS landscape or you’re looking for top-tier outsourced bookkeeping in the UK to free up your weekends, we’ve got your back. We’re friendly, we’re casual, and we speak your language (which usually involves more talk about project deadlines and less about "Extra Statutory Concessions").
The 2026 rule change for local authorities is a rare "freebie" from HMRC. It simplifies your admin, boosts your clarity, and removes a long-standing headache. So, the next time you’re signing a contract with the council, give yourself a pat on the back: the paperwork just got a whole lot lighter.
Need a hand making sense of the new CIS rules? Give Claire and the team at SBS Essex a shout. We’ll get your books sorted while you get the job done.
