What to Do If You Receive an HMRC CIS Return Enquiry?

Why You Might Receive an HMRC CIS Return Enquiry?

HMRC often reviews Construction Industry Scheme (CIS) returns to check for accuracy and compliance.

You might get a letter or call from HMRC if:

• Deductions are missing or incorrect.

• There are issues verifying subcontractors.

• You submit monthly returns late or not at all.

• There are differences between what you and your subcontractors report.

Ignoring HMRC’s contact can lead to penalties or a formal investigation.

Have you checked your CIS records recently?

If not, now is a good time to review them.

Understanding Your Responsibilities During an HMRC CIS Return Enquiry

As a contractor, you must:

• Register with HMRC for the Construction Industry Scheme.

• Verify every subcontractor before making payments.

• Deduct the correct tax rate: 20% for registered, 30% for unregistered subcontractors.

• File your CIS monthly returns by the 19th of each month.

• Provide Payment and Deduction Statements to all subcontractors.

As a subcontractor, you should:

• Register with HMRC. This is optional, but it helps you pay less tax.

• Keep detailed and accurate records of all payments and deductions.

• Submit a Self-Assessment tax returns each year, including any CIS deductions.

Staying on top of these responsibilities is essential for CIS compliance.

Common Reasons HMRC Sends a CIS ‘Nudge’ Letter

HMRC may contact you if they spot issues in your CIS returns. Common triggers include:

• Payments to subcontractors who have not been verified.

• Using the wrong tax deduction rate on payments.

• Failing to file a CIS return for a particular month.

• Declaring the wrong employment status for workers.

• Keeping incomplete or inaccurate business records.

Addressing these issues early can help you avoid further HMRC action.

What to Do Immediately Upon Receiving Contact?

If you receive a letter or call from HMRC about your CIS return, act quickly and methodically. Delaying your response increases the risk of penalties and further scrutiny.

Follow these steps:

1. Acknowledge HMRC’s Contact Without Delay

   Respond to the letter or phone call as soon as possible. Let HMRC know you have received their communication. This shows you are taking the matter seriously and are willing to cooperate.

   
   

2. Carefully Review Your CIS Filings and Records

   Go through your recent CIS returns, checking for any that are late, missing, or contain errors.

   Verify that all subcontractors have been properly checked and that the correct tax deduction rates have been applied.

   Look for discrepancies between your records and what you have reported to HMRC.

   Ensure that your Payment and Deduction Statements are accurate and up to date.

   
   

3. Seek Professional Advice If You Are Unsure

   If you find errors or if the issue is complicated, consider contacting a tax adviser or accountant with CIS experience.

   Professional help is especially important if you have a history of non-compliance or if you need to make a formal disclosure to HMRC.

   
   

4. Document All Your Actions

   Keep a written record of your communication with HMRC and any steps you take to address the issue.

   This documentation can be valuable if HMRC asks for evidence of your efforts to resolve the matter.

Taking immediate, organized action is the best way to resolve CIS enquiries and protect your business.

Correcting CIS Return Errors

If you discover mistakes in your CIS returns, address them as soon as possible. Correcting errors early can reduce the risk of penalties and show HMRC that you take compliance seriously.

Take these steps to fix CIS return errors:

• Use HMRC’s CIS Online Portal

  - Log in to your HMRC account and access the CIS section.

  - Amend previous returns to correct any figures or information.

  - Submit any returns that were missed for previous months.

  
  

• Re-Verify Subcontractors if Needed

  - If you notice that a subcontractor was not verified before payment, complete the verification process through HMRC’s system.

  - Update your records to reflect the correct verification status and tax deduction rate.

  
  

• Update Incorrect Business or Contact Details

  - Check that your Unique Taxpayer Reference (UTR), business address, and trading status are all accurate in HMRC’s records.

  - Make any necessary updates online or by contacting HMRC directly.

  
  

• Keep Clear Records of All Corrections

  - Document each change you make to your CIS returns.

  - Save confirmation emails or letters from HMRC that show your amendments have been accepted.

Fixing errors quickly is a key part of staying compliant with CIS rules.

Making a Voluntary Disclosure

If you find errors or omissions in your CIS returns, making a voluntary disclosure to HMRC is often the best course of action. Being proactive can reduce the penalties you might face and demonstrates your willingness to comply.

Here’s how to make a voluntary disclosure:

• Use the Digital Disclosure Service

  - HMRC provides an online platform called the Digital Disclosure Service.

  - Log in and follow the steps to disclose the errors or missing information in your CIS returns.

  - Provide clear and honest details about what went wrong and how you are correcting it.

  
  

• Consider the Contractual Disclosure Facility (COP9) for Serious Issues

  - If you believe the errors were deliberate or involve significant amounts, you may need to use the Contractual Disclosure Facility, also known as COP9.

  - This process is designed for serious cases and offers protection from criminal prosecution if you fully disclose the details.

  
  

• Prepare Supporting Documents

  - Gather all relevant records, such as payment statements, invoices, and correspondence.

  - This information will help HMRC understand the nature and extent of the errors.

  
  

• Keep a Record of Your Disclosure

  - Save copies of everything you submit to HMRC.

  - Keep a note of the date you made the disclosure, and any reference numbers provided.

Voluntary disclosure shows HMRC that you are committed to correcting mistakes and staying compliant.

Finding Missing CIS Information

Missing CIS information can make it difficult to complete your returns accurately. If you cannot locate certain payment or deduction details, take these steps to fill the gaps:

• Request Payment and Deduction Statements from Contractors

  - Contact each contractor you have worked for and ask for copies of your Payment and Deduction Statements.

  - These statements show exactly how much was paid to you and how much tax was deducted under CIS.

  
  

• Contact HMRC for Deduction Details

  - If your contractor cannot provide the information, write to HMRC and request a breakdown of your CIS deductions.

  - HMRC can supply this data if you give them your Unique Taxpayer Reference (UTR) and details of the relevant tax year.

  
  

• Estimate Amounts Using Bank Statements and Contracts

  - If you are still missing information, review your bank statements and contracts to estimate the amounts received and deducted.

  - Clearly note any estimates you use when completing your tax return, so HMRC understands why exact figures are not available.

  
  

• Keep Records of All Requests and Estimates

  - Save copies of your requests to contractors and HMRC.

  - Document how you arrived at any estimated figures.

Filling in missing CIS information accurately helps you avoid errors and supports your case if HMRC asks for evidence.

What If the Contractor Didn't Pay HMRC?

Sometimes, a contractor may deduct CIS tax from your payments but fail to send that money to HMRC. This situation can be stressful, but you still have rights as a subcontractor.

Take these steps if you suspect your contractor did not pay HMRC:

• Claim Your Deductions on Your Tax Return

  You are allowed to claim the CIS deductions on your Self Assessment tax return, even if the contractor did not pass the money to HMRC.

  
  

• Refer to the Regulations

  - If HMRC questions your claim, refer to regulation SI2005/2045 reg 9(10).

  - This rule states that subcontractors can claim deductions as long as they were withheld by the contractor, regardless of whether HMRC received the payment.

  
  

• Keep All Evidence

  - Save your Payment and Deduction Statements, contracts, and any correspondence with the contractor.

  - These documents prove that tax was deducted from your payments.

  
  

• Communicate Clearly with HMRC

  - If HMRC challenges your claim, provide copies of your records and explain the situation.

  - Point out that the law allows you to claim these deductions.

Knowing your rights protects you if a contractor fails to meet their CIS obligations.

Consequences of Not Responding to HMRC

Ignoring contact from HMRC about your CIS return can lead to serious consequences for you and your business. Failing to respond signals non-compliance and increases the risk of further action.

Here is what may happen if you do not respond:

• Compliance Checks or Full Investigations

  - HMRC may launch a compliance check or a full investigation into your CIS records and tax affairs.

  - This process can be time-consuming and stressful, requiring you to provide detailed evidence and explanations.

  
  

• Financial Penalties

  - You could face penalties of up to £3,000 for each incorrect or missing CIS return.

  - Late responses or continued non-compliance may lead to additional fines and interest charges.

  
  

• Loss of Gross Payment Status

  - If you hold gross payment status, failing to respond or comply can result in HMRC removing this benefit.

  - This means contractors will have to deduct CIS tax from your payments in the future, reducing your cash flow.

  
  

• Damage to Your Business Reputation

  - Ongoing issues with HMRC can harm your reputation with clients, contractors, and suppliers.

  - It may also affect your ability to secure future work or contracts.

Responding to HMRC promptly is essential to avoid penalties and protect your business standing.

Best Practices to Stay Compliant Going Forward

Staying compliant with CIS requirements helps you avoid HMRC enquiries and keeps your business running smoothly. Adopting good habits now can save you time, money, and stress in the future.

Follow these best practices:

• Submit CIS Returns on Time

  Mark deadlines in your calendar and set reminders to file your monthly returns by the 19th of each month.

  
  

• Keep Accurate Subcontractor Records

  Maintain up-to-date records for every subcontractor you work with, including verification details and payment information.

  
  

• Provide Payment and Deduction Statements Promptly

  Give each subcontractor a clear statement showing what you paid and what tax you deducted.

  
  

• Verify All Subcontractors Before Payment

  Use HMRC’s verification process to confirm each subcontractor’s status and ensure you apply the correct tax rate.

  
  

• Update Business Details with HMRC

  Inform HMRC right away if your business address, contact information, or trading status changes.

  
  

• Maintain Clear Bank Records and Expense Logs

  Keep your financial records organized and easy to access. This makes it simpler to check figures and answer HMRC questions if they arise.

Consistent record-keeping and timely submissions are key to long-term CIS compliance.

Wrapping Up: Responding Right to HMRC’s CIS Enquiries!

If HMRC contacts you about your CIS return, act quickly and take the enquiry seriously.

Review your records, correct any errors, and respond to HMRC with clear information.

Cooperating fully and keeping your records in order helps you avoid penalties and further investigations. Proactive action protects your business and supports ongoing compliance with CIS rules.

Timely action and accurate records are your best defence in any HMRC CIS return enquiry.

Need help reviewing or correcting your CIS records?

AMS Admin Services can support you with compliant CIS returns, subcontractor verification, and HMRC correspondence so you can stay focused on running your business.

Get expert CIS support with AMS!