How do I deal with HMRC CIS enquiries or investigations?

Learn how to deal with HMRC CIS enquiries or investigations. Understand why HMRC might contact you, what they will ask for, and how to respond correctly to protect your business.

If you work in the construction industry, you will already know how detailed and strict the Construction Industry Scheme (CIS) can be. HMRC routinely carries out CIS enquiries and investigations to make sure contractors and subcontractors are following the rules correctly.

Receiving a letter or phone call from HMRC can be stressful, but a CIS enquiry does not always mean you have done something wrong. Sometimes it is simply a routine compliance check. Knowing what to expect and how to respond can make the process far less daunting.

This article explains why HMRC may open a CIS enquiry, what they typically look for, and how to deal with the process professionally and efficiently.

Why HMRC might open a CIS enquiry

HMRC investigates CIS records to ensure that contractors and subcontractors are paying the correct amount of tax and complying with their obligations. An enquiry may be triggered for several reasons:

  • Late or missing CIS returns.

  • Incorrect deductions from subcontractor payments.

  • Failure to verify subcontractors before payment.

  • Large or unusual CIS refunds being claimed.

  • Discrepancies between CIS submissions and other HMRC data.

  • Random compliance checks to ensure adherence to the scheme.

In some cases, HMRC receives data from third parties or uses automated systems to detect inconsistencies, which can trigger an enquiry even if there is no deliberate wrongdoing.

What HMRC will ask for

When HMRC contacts you about a CIS enquiry, they will usually request:

  • Copies of your monthly CIS returns.

  • Subcontractor payment and deduction statements.

  • Verification records for each subcontractor.

  • Invoices, receipts, and payment evidence.

  • Payroll and PAYE records (if you employ staff).

  • Bank statements and accounting records.

They may also want to confirm that your subcontractors are genuinely self employed and not employees. This helps ensure that the correct taxes and National Insurance contributions are being paid.

How to respond to an HMRC CIS enquiry

  1. Stay calm and read the letter carefully
    Review what HMRC is asking for and the time frame for providing the information. Most requests are straightforward, so it is important not to panic.

  2. Check what period the enquiry covers
    HMRC will specify which tax year or months they are reviewing. Make sure you gather records for that specific time frame.

  3. Contact your accountant immediately
    An accountant with CIS experience can communicate with HMRC on your behalf. They will review your records, prepare the necessary documents, and ensure your responses are accurate.

  4. Provide information promptly
    HMRC expects full cooperation and timely responses. If you need more time to gather information, your accountant can request an extension.

  5. Be honest and transparent
    If there has been a mistake, explain it clearly and provide evidence of how it happened. HMRC tends to be more lenient with genuine errors than with attempts to conceal information.

  6. Keep copies of all correspondence
    Always keep digital or paper copies of any letters or documents you send to HMRC for your records.

What happens during a CIS investigation

Once you provide the requested information, HMRC will review your records to determine whether the correct deductions and returns have been made.

They may:

  • Ask for further clarification or additional documents.

  • Arrange a phone or in-person meeting to discuss your CIS processes.

  • Visit your business premises for a compliance check.

During a visit, HMRC officers will inspect your CIS records, check that subcontractor verifications are up to date, and review payments and deductions. They may also speak with staff responsible for payroll or bookkeeping.

The duration of an investigation depends on its complexity. Simple checks can take a few weeks, while more detailed reviews may last several months.

Possible outcomes of an HMRC CIS enquiry

After reviewing your records, HMRC will usually issue one of the following outcomes:

  1. No action needed
    If everything is correct, HMRC will confirm that your CIS records are compliant and close the enquiry.

  2. Adjustments or corrections
    If small errors are found, HMRC may ask you to correct them in your next return or issue a small balancing payment.

  3. Penalties or fines
    If HMRC finds serious or repeated non-compliance, you may be charged penalties, interest on unpaid tax, or face further investigation.

  4. Repayment delays
    If you have claimed a CIS refund, HMRC may delay releasing it until the enquiry is complete.

How penalties are calculated

Penalties depend on the type and severity of the issue. HMRC considers whether errors were:

  • Careless: A genuine mistake that was not deliberate.

  • Deliberate: An intentional attempt to underpay tax.

  • Deliberate and concealed: An attempt to hide information or falsify records.

Careless errors usually lead to smaller penalties, while deliberate behaviour can result in larger fines and interest charges.

How to reduce penalties

If you have made a mistake, HMRC is often more lenient if you:

  • Disclose errors voluntarily before they are discovered.

  • Cooperate fully with the investigation.

  • Take steps to correct the issue promptly.

  • Improve your record-keeping procedures to prevent future errors.

In some cases, your accountant can negotiate reduced penalties or agree a time-to-pay arrangement if you owe additional tax.

How to prevent future CIS enquiries

To reduce the likelihood of future HMRC checks:

  • File all CIS returns on time, even nil returns.

  • Verify every subcontractor before making payments.

  • Keep accurate payment, deduction, and verification records for at least six years.

  • Ensure you apply the correct CIS deduction rate (20% or 30%).

  • Regularly reconcile CIS transactions in your accounting software.

  • Seek professional advice if you are unsure about any part of the scheme.

How an accountant can help during an HMRC CIS investigation

An accountant familiar with the construction industry can:

  • Communicate directly with HMRC to manage the enquiry.

  • Review your CIS records and identify potential issues before HMRC does.

  • Prepare all documentation and ensure deadlines are met.

  • Negotiate penalties and explain your position to HMRC.

  • Advise on improving compliance and reducing future risks.

Having professional representation ensures the process is handled smoothly, giving you peace of mind and protecting your business reputation.

The bottom line

HMRC CIS enquiries are common, but they can usually be resolved quickly with good record keeping and honest communication. The key is to respond promptly, cooperate fully, and seek professional advice if needed.

By maintaining accurate CIS records, filing on time, and following the scheme’s rules, you can minimise the risk of penalties and keep your construction business running smoothly. If you are ever unsure, your accountant can guide you through the process and ensure you remain compliant with HMRC.