Key facts
- HMRC can carry out announced or unannounced compliance visits to CIS contractors.
- Checks typically review CIS returns, payment records, verification procedures, and deduction calculations.
- Contractors must keep CIS records for at least 3 years after the end of the tax year (6 years is recommended).
- HMRC may issue penalties for inaccuracies, failure to deduct, or failure to verify subcontractors.
- Voluntary disclosure of errors before an HMRC check typically results in lower penalties.
What Is a CIS Compliance Check?
A CIS compliance check is an HMRC review of a contractor’s CIS operations to ensure compliance with the scheme’s requirements. HMRC’s aim is to verify that contractors are correctly deducting and paying over CIS tax, verifying subcontractors, filing accurate returns, and maintaining proper records.[1]
Compliance checks range from desk-based reviews (where HMRC requests specific information by post or online) to on-site visits where an HMRC officer attends the contractor’s premises.
Types of Compliance Check
| Type | Description | How It Works |
|---|---|---|
| Desk-based review | HMRC reviews data and requests specific records | Letter or phone call asking for documents; no site visit |
| Announced visit | HMRC writes in advance to arrange an on-site inspection | Typically 2–4 weeks’ notice; you can request a different date |
| Unannounced visit | HMRC attends without prior notice | Usually reserved for suspected fraud or serious non-compliance |
What HMRC Checks
During a compliance check, HMRC will typically review:[2]
- Verification records: Did you verify every subcontractor with HMRC before making the first payment?
- Deduction calculations: Were the correct rates applied (20%, 30%, or 0%)? Were materials properly excluded?
- CIS returns: Were monthly returns (CIS300) filed on time and accurately?
- Payment and deduction statements: Were statements issued to subcontractors within 14 days of the end of each tax month?
- HMRC payments: Were CIS deductions paid over to HMRC by the 22nd of each month?
- Employment status: Are workers correctly classified as subcontractors rather than employees?
Employment Status
One of the most significant areas HMRC examines is whether workers treated as CIS subcontractors are genuinely self-employed. If HMRC determines that a worker should have been an employee, the contractor may be liable for:
- PAYE Income Tax that should have been deducted
- Employer and employee NICs
- Interest and penalties on the unpaid amounts
Important: The employment status question is separate from CIS. Even if a worker is registered as a CIS subcontractor, HMRC can reclassify them as an employee if the working relationship has the characteristics of employment (e.g. control, obligation to provide personal service, mutuality of obligation).
Record-Keeping Requirements
Contractors must maintain CIS records for at least 3 years after the end of the tax year to which they relate (HMRC recommends 6 years). Required records include:[3]
- Monthly CIS returns submitted to HMRC
- Payment and deduction statements issued to each subcontractor
- Verification records (dates verified, UTRs, deduction rates confirmed)
- Invoices from subcontractors detailing labour, materials, and VAT
- Bank statements showing payments made
- Contracts, purchase orders, or written agreements with subcontractors
What to Expect During a Visit
If HMRC attends your premises, the visiting officer will:[2]
- Introduce themselves and explain the scope and purpose of the visit
- Request access to your CIS records and general accounting records
- Review a sample of subcontractor payments, checking verification, deductions, and statements
- Ask questions about your CIS processes, how you verify subcontractors, and how you determine employment status
- Provide feedback at the end of the visit, indicating any issues found
- Follow up in writing with a formal outcome, including any adjustments or penalties
Tip: You are entitled to have an accountant or tax adviser present during an HMRC visit. If you receive notice of a compliance check, contact your adviser immediately so they can prepare and attend with you.
Penalties for Errors Found
If HMRC identifies errors or non-compliance, penalties depend on the nature of the failure:[1]
| Behaviour | Unprompted Disclosure | Prompted (HMRC Finds It) |
|---|---|---|
| Reasonable care taken (genuine mistake) | 0% | 0% |
| Careless (lack of reasonable care) | 0% – 15% | 15% – 30% |
| Deliberate but not concealed | 20% – 35% | 35% – 70% |
| Deliberate and concealed | 30% – 50% | 50% – 100% |
Voluntary disclosure — telling HMRC about errors before they find them — always results in lower penalties than if HMRC discovers the errors during a check.
Frequently Asked Questions
How does HMRC select contractors for compliance checks?
HMRC uses risk-based criteria, including data matching, irregular filing patterns, complaints from subcontractors, and industry intelligence. Contractors who file late, report inconsistent figures, or have a history of errors are more likely to be selected. Random checks also occur.
What records do I need to show during a compliance check?
You should be able to produce: CIS monthly returns (CIS300), payment and deduction statements issued to subcontractors, verification records (confirmation of subcontractor UTR and deduction rate), bank statements showing payments made, invoices from subcontractors, and contracts or agreements.
Can HMRC visit without warning?
Yes, although most CIS compliance checks are announced in advance (HMRC writes to you giving a date). However, HMRC does have the power to make unannounced visits, particularly if they suspect fraud or deliberate non-compliance. You have the right to request a postponement of an announced visit for a reasonable period.
What happens if HMRC finds errors?
If errors are found, HMRC will calculate any additional CIS deductions that should have been made and any tax underpaid. You may be required to pay the shortfall plus interest. Penalties may also be charged, ranging from 0% (for genuine mistakes with reasonable care) up to 100% of the underpaid amount (for deliberate and concealed errors).
Further Reading
- CIS Penalties for Late Filing & Payment — the full penalty framework
- The CIS Verification Process — how to verify subcontractors correctly
- Correcting CIS Errors & Amendments — how to fix mistakes before HMRC finds them
- Common CIS Mistakes to Avoid — prevent errors that trigger compliance checks
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