How do I deal with HMRC CIS enquiries or investigations?

At Towerstone Accountants we provide specialist CIS accountancy services for contractors, subcontractors, and construction businesses across the UK. We created this webpage for people working in construction who want clear guidance on CIS deductions, refunds, verification, and monthly return responsibilities, without jargon. Our aim is to help you stay compliant with HMRC, avoid penalties, and keep your cash flow and records under control.

An HMRC CIS enquiry or investigation can feel intimidating, even if you believe you have done everything right. I regularly speak to contractors and subcontractors who panic the moment a brown envelope arrives or an online message lands in their HMRC account mentioning CIS compliance. The worry is usually not just about tax, but about time, disruption, and the fear of having made a mistake without realising.

The reality is that CIS enquiries are common, they are often routine, and they do not automatically mean HMRC thinks you have done something wrong. However, they do need to be handled carefully. How you respond, what information you provide, and how organised you are can make a significant difference to how quickly the matter is resolved and whether it escalates.

In this article I want to explain clearly how HMRC CIS enquiries and investigations work, why they happen, what HMRC is usually looking for, how to respond calmly and professionally, and how to protect yourself or your business throughout the process. This is written from practical experience of dealing with CIS reviews from both the contractor and subcontractor side, including cases that were resolved quickly and others that became costly because early mistakes were made.

What HMRC means by a CIS enquiry or investigation

HMRC uses a range of terms, and they are not always consistent.

A CIS enquiry is usually a review or check into specific aspects of your CIS compliance. It may focus on one period, one subcontractor, or one issue such as verification or deductions.

A CIS investigation is broader and more in depth. It may cover multiple tax years, look at systems and controls, and involve wider questions such as employment status or whether CIS should have applied at all.

Both fall under HMRC’s compliance activity, and both are legally binding processes that require a response.

Why HMRC starts CIS enquiries

Most CIS enquiries are not random. They are usually triggered by something specific, even if it is not obvious to you.

Common triggers include inconsistencies between CIS returns and tax returns, late or missing CIS monthly submissions, repeated nil returns followed by activity, subcontractors claiming deductions that HMRC cannot match, or industry wide compliance campaigns where HMRC targets certain sectors or behaviours.

In some cases, a subcontractor complaint or whistleblowing report can also trigger an enquiry, particularly around employment status.

Importantly, being selected does not mean HMRC has already decided there is a problem. It means they want clarity.

The first contact from HMRC

Initial contact usually comes by letter or through your HMRC online account. The letter will normally state that HMRC is reviewing your CIS position and will outline what they want to look at.

This might include:.

• Specific tax periods

• CIS monthly returns

• Subcontractor details

• Contracts and invoices

• Verification records

The tone is often formal but neutral. At this stage, it is critical not to ignore the letter or delay responding.

HMRC letters include response deadlines. Missing these deadlines can escalate the situation unnecessarily.

Do not panic and do not over respond

The two most common mistakes I see at this stage are panic and over sharing.

Panic leads to rushed replies, incomplete information, or defensive language. Over sharing leads to sending HMRC far more information than they asked for, which can open up additional lines of enquiry.

The correct approach is calm, measured, and factual. Read the letter carefully, identify exactly what HMRC has asked for, and respond to that and nothing more.

Understanding what HMRC is really checking

HMRC CIS enquiries usually focus on a few key risk areas.

One is whether you registered for CIS correctly and at the right time, particularly as a contractor.

Another is whether subcontractors were verified correctly and the right deduction rates were applied.

HMRC also looks closely at whether CIS deductions were calculated correctly, particularly the split between labour and materials, and whether VAT was treated correctly.

A major area of focus is employment status. HMRC often uses CIS enquiries to assess whether people treated as subcontractors should really have been employees.

Understanding which of these areas applies to your case helps you prepare the right information.

Getting your records in order before responding

Before you reply to HMRC, you should gather and review your records.

This includes CIS monthly returns, subcontractor verification details, CIS deduction statements, invoices received and issued, contracts or agreements, payment records, and any correspondence relating to CIS.

Reviewing these yourself first allows you to spot gaps or issues early, rather than discovering them for the first time through HMRC questions.

If you identify errors, it is better to know about them before HMRC points them out.

Responding honestly but carefully

Honesty is essential when dealing with HMRC. Deliberately misleading HMRC can turn a compliance check into something much more serious.

However, honesty does not mean volunteering unnecessary detail or speculation.

Answer questions directly, provide evidence where requested, and avoid commentary that goes beyond the facts. If you do not know the answer to a question, say so and explain how you will find out.

HMRC values clarity and cooperation more than perfection.

Correcting mistakes during a CIS enquiry

Many CIS enquiries uncover genuine mistakes rather than deliberate non compliance.

HMRC allows errors to be corrected, and in many cases penalties can be reduced or avoided altogether if mistakes are disclosed promptly and cooperation is shown.

This might involve amending CIS returns, paying underpaid deductions, or correcting verification records.

Trying to hide or minimise mistakes usually makes matters worse.

Penalties and how HMRC approaches them

Penalties are a major concern for most people facing a CIS enquiry.

HMRC has a structured approach to penalties, and they are not automatic. HMRC considers behaviour, including whether errors were careless, deliberate, or concealed.

Where mistakes are due to misunderstanding and are corrected voluntarily, penalties are often reduced significantly or not applied at all.

Interest may still be charged on late paid amounts, but this is separate from penalties.

Understanding this framework helps reduce fear and encourages constructive engagement.

Employment status reviews within CIS investigations

One of the most serious aspects of a CIS investigation is an employment status review.

HMRC may look at whether people treated as CIS subcontractors were in reality employees. This can result in PAYE and National Insurance liabilities being assessed retrospectively, often over several years.

This is where investigations become expensive and stressful.

HMRC will examine working practices, not just contracts. They will look at control, substitution, financial risk, and mutuality of obligation.

If you are concerned this may apply, professional advice is strongly recommended.

Dealing with HMRC interviews or meetings

In some cases, HMRC may request a meeting or phone call.

You are not required to attend without preparation. You are entitled to ask for time to prepare and to have an adviser present.

These meetings are fact finding exercises, but what is said can influence HMRC’s conclusions. It is important to be accurate, measured, and not speculate.

If you do not understand a question, ask for clarification. Do not guess.

When to involve an accountant or adviser

While some simple CIS enquiries can be handled without professional help, many benefit from involving an accountant or tax adviser with CIS experience.

This is particularly true if the enquiry involves multiple periods, employment status, large sums of money, or potential penalties.

An adviser can manage correspondence, ensure responses are appropriate, and act as a buffer between you and HMRC.

From experience, early professional involvement often shortens enquiries rather than prolonging them.

How long CIS enquiries usually last

The length of a CIS enquiry varies widely.

Simple checks can be resolved in weeks. More complex investigations can take months or longer, particularly if multiple years or status issues are involved.

Delays are often caused by slow responses, missing records, or disagreements about facts.

Clear communication and timely replies help keep things moving.

What happens at the end of a CIS enquiry

At the conclusion of an enquiry, HMRC will issue an outcome.

This may confirm that everything is in order, identify errors that have been corrected, or set out additional tax, interest, or penalties due.

You have the right to ask questions, request explanations, and appeal decisions if you disagree.

The end of an enquiry is also an opportunity to improve systems to avoid repeat issues.

Appeals and disputes with HMRC

If you disagree with HMRC’s conclusions, you are not powerless.

There are formal appeal processes, and in many cases issues can be resolved through discussion before reaching that stage.

Appeals must be made within strict time limits, so prompt action matters.

Having clear records and professional support strengthens your position significantly.

Preventing future CIS enquiries

While no one can guarantee they will never face an HMRC enquiry, good systems reduce the risk.

This includes timely CIS submissions, accurate verification, clear contracts, proper record keeping, and regular reviews of subcontractor status.

Using accounting software correctly and reviewing CIS regularly rather than annually also helps catch issues early.

HMRC is far less concerned with businesses that show consistent effort to comply.

How subcontractors should deal with CIS enquiries

Subcontractors can also face CIS related enquiries, particularly around deductions claimed or income declared.

The same principles apply. Keep CIS statements, reconcile deductions, respond calmly, and provide evidence where requested.

Most subcontractor enquiries relate to mismatches rather than wrongdoing.

Common myths about HMRC CIS investigations

One common myth is that HMRC investigations are always adversarial. In reality, many are administrative and resolved quickly.

Another is that speaking to HMRC will make things worse. Poor communication makes things worse, not clear communication.

A third is that ignoring HMRC will make the problem go away. It will not.

Understanding the process removes much of the fear.

The emotional side of dealing with HMRC

It is worth acknowledging that HMRC enquiries are stressful. Even compliant businesses feel anxious when questioned.

Taking a structured approach, breaking tasks down, and seeking support where needed makes a real difference.

Remember that HMRC deals with mistakes every day. The aim is resolution, not punishment.

Final thoughts

So how do you deal with HMRC CIS enquiries or investigations. The answer is with preparation, clarity, and calm professionalism.

Most CIS enquiries arise from misunderstandings, system gaps, or data mismatches rather than deliberate non compliance. HMRC expects cooperation and accuracy, not perfection.

Respond on time, provide what is asked for, correct mistakes openly, and seek professional support when issues are complex or high risk.

From experience, the outcomes of CIS enquiries are shaped less by what went wrong originally and more by how the enquiry is handled. Treated properly, they are a manageable part of operating in the construction industry rather than something to fear.

You may also find our guidance on How can an accountant help contractors stay compliant under CIS and How can I appeal a CIS penalty helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.