CIS Refund Delayed by HMRC? What a Compliance Review Means

HMRC checks CIS refunds before payment because CIS repayment claims are a recognised area of error and, occasionally, fraud, particularly among limited company subcontractors reclaiming deductions against Corporation Tax or PAYE. The check verifies that the deductions claimed match what contractors actually reported and paid over to HMRC through their monthly returns.

This is different from an enquiry into a filed and accepted return. It is a pre-payment verification step, and HMRC does not need to open a formal enquiry to ask questions before releasing a repayment, though a full enquiry can follow if concerns are not resolved quickly.

Reviews are commonly triggered by a mismatch between the CIS deductions your company claims and the amounts contractors reported on their monthly returns; a large or unusual increase in claimed deductions compared with prior periods; missing deduction statements; or a pattern across a sector that HMRC is monitoring.

HMRC may also query the underlying engagement of subcontractors. If a business used to file CIS returns treats a group of workers in a way that looks more like employment than genuine subcontracting, this can prompt a wider review that goes beyond simply verifying figures.

HMRC can request records reasonably needed to verify the deductions claimed, including CIS deduction statements, invoices, contracts with subcontractors, bank statements evidencing receipt of payments net of deduction, and payroll or accounting records, using information powers under Schedule 36 FA 2008 where correspondence does not resolve matters.

You are entitled to understand why a particular record is being requested and can question a request that goes beyond what is reasonably required to check the repayment claim. Formal information notices carry statutory rules, and some notice types can be appealed to the tribunal; simply ignoring a request, however, is likely to prolong the delay and can support adverse conclusions.

There is no fixed statutory deadline for HMRC to complete a CIS repayment check, and the time taken depends on how quickly reconciling evidence is provided and whether wider status questions arise. A clean mismatch resolved with contractor deduction statements can be sorted within weeks; a review that expands into employment status or multiple contractors can take considerably longer.

The check ends when HMRC releases the repayment as claimed, releases a reduced amount, or issues a formal decision refusing some or all of it. If status has been reclassified, a separate decision on PAYE and National Insurance liability may follow, each carrying its own review and appeal rights.

Where a repayment claim or contractor return contains an inaccuracy, penalties under Schedule 24 FA 2007 apply based on behaviour, ranging from no penalty where reasonable care was taken despite an innocent error, through a careless range, to higher penalties for deliberate inaccuracies. Separate penalties apply under the CIS regulations for late or incorrect contractor monthly returns, calculated by reference to the number of subcontractors reported on and the lateness involved.

A prompt and complete disclosure of any error, made before HMRC identifies it, together with cooperation once a check starts, can reduce a penalty within the applicable statutory range. Correcting contractor monthly returns as soon as an error is found also limits how the position develops.

A frequent mistake is claiming deductions based on internal records without first checking that contractors actually reported the same figures on their monthly returns, which is the primary source HMRC checks against. Missing or unrequested deduction statements from contractors also cause avoidable delay, since HMRC often cannot verify a claim without them.

Businesses sometimes respond to HMRC's questions piecemeal, sending partial figures rather than a full reconciliation, which generates further correspondence rounds. Treating subcontractors as self-employed without reviewing the reality of control, substitution and mutuality of obligation can also expose the business to a much larger review than the refund itself.

Consider a subcontracting company claiming repayment of CIS deductions suffered during the tax year, offset against its Corporation Tax liability. HMRC delayed the refund after noticing that deductions claimed for one contractor did not match the figures that contractor had reported. The company obtained a corrected deduction statement from the contractor, who had made an administrative error on an earlier monthly return, and supplied bank statements showing the net payments received.

HMRC also asked general questions about how a small number of workers were engaged, since the company's invoices described ongoing, closely supervised work. After reviewing contracts and working arrangements, it became clear the arrangements were genuine subcontracting with a right of substitution in practice, and HMRC did not pursue a status reclassification. The refund was released once the contractor's records were corrected, without any penalty, since the discrepancy originated with the contractor's error rather than the company's own return.