HMRC announce CIS nudge letter campaign

HMRC has recently introduced a campaign aimed at contractors in the construction industry where HMRC are issuing letters to contractors operating the CIS scheme asking them to check and correct, if appropriate their CIS deductions from their subcontractors.

HMRC started to issue these “nudge” letters during the latter weeks of July and the letters are designed to get contractors to review its operation of the CIS and ensure particularly that the correct tax deductions are made from payments to subcontractors.

As most contractors are aware, when engaging a subcontractor, the contractor must verify the correct rate of CIS tax to deduct from payments it makes to the subcontractors. The tax rate can be 30% where the subcontractor is not registered with HMRC, 20% which is the standard rate of CIS deduction for a subcontractor that is registered for CIS with HMRC and 0% where the subcontractor holds gross payment status.

Problems arise for a contractor where it does not verify the subcontractor correctly or where a subcontractors CIS deduction rate changes, for example gross status to standard rate and the contractor fails to adjust the deduction accordingly. HMRC can demand any resulting underpayment of CIS from the contractor.

Whilst a contractor does not need to re-verify a subcontractor that have been used before and included on a monthly return within the last 2 previous tax years, it may be advisable to consider reverifying them on a more regular basis just to make sure nothing has changed.

If you are a contractor and receive one of these nudge letters why not reach out to The Guild for advice on CIS compliance and to discuss our compliance options that would remove these kinds of HMRC interventions.