A section 62A penalty is a financial penalty imposed on a person who makes a payment under a construction contract knowing, or having reason to know, that a connected party has deliberately failed to comply with Construction Industry Scheme obligations. The penalty is set at 20% of the payment and the liability falls on the payer.
FA 2004 section 62A was inserted by Finance Act 2026 (Royal Assent 18 March 2026) and came into force on 6 April 2026. It is one of two new knowledge-based penalty provisions in the Finance Act 2026 CIS package; section 62B applies to returns rather than payments (see the separate entry). Together they give HMRC a direct penalty route against contractors who process payments despite awareness (or constructive awareness) of supply-chain non-compliance.
The key elements of a section 62A charge:
- Trigger: making a payment under a construction contract while knowing (or having reason to know) of deliberate CIS non-compliance by a connected party.
- Rate: 20% of the payment made (not 30%, not a percentage of any tax lost by HMRC).
- Who is liable: the payer (the person who made the payment). This may be a company or an individual.
- Standard: “knew or should have known”: a failure to carry out reasonable due diligence satisfies the “should have known” limb without any need to show intent.
Where a company is the payer and the company's own deliberate behaviour contributed to the non-compliance, HMRC can also pursue officers personally under existing officer-liability provisions, though those provisions operate separately from s.62A and do not attach a fixed percentage to director-level exposure.
For a worked example of the s.62A penalty and the due-diligence steps that prevent it, see CIS April 2026 rule changes explained. The supply-chain checks that protect against this liability are covered at CIS supply chain compliance and due diligence.