What is a CIS compliance review?

A CIS compliance review examines whether a contractor is correctly verifying subcontractors before paying them, applying the right deduction rate — gross, standard, or higher rate — and filing accurate monthly CIS returns on time.

Where the business is also a subcontractor, HMRC will check that deductions suffered are properly recorded and match what the paying contractors actually reported, which is the same reconciliation that often drives a refund check.

Reviews can be desk-based, using records requested by post or online, or can involve a visit to the business premises to inspect records, contracts and, in some cases, to speak with people engaged on site.

The scheme's core obligations sit in Chapter 3 Part 3 Finance Act 2004 (opens in a new tab), which requires contractors to register, verify subcontractors, deduct tax at the correct rate, and account for it to HMRC.

The Income Tax (Construction Industry Scheme) Regulations 2005 set out the detailed compliance requirements, including the monthly return deadline and the records a contractor must keep to support what was reported.

HMRC's power to inspect business premises and request records for the review comes from Schedule 36 Finance Act 2008, and a formal information notice under that schedule usually sets the deadline for producing documents.

Keep a clear, organised file of subcontractor verification results, UTRs, and the deduction rate applied to each, since gaps here are one of the most common findings in a review.

Reconcile your monthly CIS returns against your payment records and subcontractor ledger regularly, not just when HMRC asks, so any discrepancy is caught and corrected early.

If HMRC requests a site visit, prepare in advance by having contracts, verification records and recent returns readily accessible, and consider having an adviser present.

Where the review finds under-deducted amounts, HMRC can assess the contractor for the shortfall, plus interest, even where the subcontractor concerned has separately paid the tax due through their own return.

Penalties can apply for late or incorrect monthly returns, and separately for failing to keep adequate CIS records, on top of any tax assessed.

Managing a full review properly takes adviser time to reconcile records and negotiate any assessment. Growth plan clients have free tax investigation insurance included to cover this — see /fees.

Do not rely on memory for subcontractor verification status; keep the actual verification reference and outcome on file for every subcontractor.

Do not miss the monthly CIS return deadline even when there is nothing to report, since nil returns are still required and penalties apply for missing them.

Do not assume paying the correct amount overall covers gaps in the underlying records; HMRC can still penalise poor record-keeping separately.