Why is HMRC checking my CIS refund?

CIS refund claims sit high on HMRC's risk register because the scheme handles significant tax collected at source, and the reconciliation between what contractors deduct and what subcontractor companies claim back is a well-known area of error and, occasionally, deliberate fraud.

A check is often triggered automatically where the deductions claimed do not match the figures contractors reported through their own monthly CIS returns, where a company's claimed deductions increase sharply year on year without an obvious reason, or where a company has no history of filing CIS returns itself despite claiming repayment as a deducted subcontractor.

HMRC may also open a check where it suspects the underlying working arrangements look more like employment than genuine subcontracting, since misclassified status affects far more than just the refund calculation.

The Construction Industry Scheme is established under Chapter 3 Part 3 Finance Act 2004 (opens in a new tab), which requires contractors to deduct tax from payments to most subcontractors and pay it to HMRC, with the subcontractor able to set the deduction against its own tax liabilities.

The Income Tax (Construction Industry Scheme) Regulations 2005 set out the detailed mechanics, including monthly returns, deduction statements, and the verification checks contractors must carry out before paying a subcontractor gross or at the standard rate.

Where HMRC has doubts about a refund claim, it uses its general Schedule 36 Finance Act 2008 information powers to request contracts, invoices, bank statements, and deduction statements before releasing any repayment.

Reconcile every deduction statement received from contractors against the figures in your claim before HMRC does — most disputes trace back to a missing or mismatched statement rather than fraud.

If your company also engages subcontractors, review whether their working arrangements genuinely support self-employed status, since HMRC often widens a refund check into an employment status review once it starts looking.

Respond to any Schedule 36 request fully and on time; a partial response is the single biggest cause of a check taking longer than it needs to.

The immediate cost is usually cash flow, since HMRC generally holds the refund back until it is satisfied the figures are correct.

If the check widens into a full CIS compliance review or employment status enquiry, professional fees to manage the response can add up meaningfully. Growth plan clients have free tax investigation insurance included, covering exactly this kind of check — see /fees.

Persistent record-keeping gaps that repeatedly trigger checks also cost you in delay each time a refund is due.

Do not submit a refund claim without first reconciling it against the deduction statements you actually hold.

Do not assume a check is purely administrative if HMRC starts asking about how subcontractors are engaged — that line of questioning can lead somewhere more significant.

Do not chase HMRC for the refund without first supplying everything requested; incomplete evidence guarantees further delay.