HMRC Compliance Check on Your Construction Company
The short answer
Don't panic and don't ignore it. Read which tax and which period the letter covers, call your accountant the same day, gather your CIS, payroll and VAT records, and answer by the deadline. If you find a mistake, tell HMRC before they find it: the penalty is much lower.
- Read the letter first. Which tax, which years and the deadline decide everything else.
- CIS is the usual focus. Verification, deduction rates, monthly returns and whether your subbies are really self-employed.
- HMRC can go back 4 years, 6 if you were careless and 20 if it was deliberate.
- Telling them first cuts the penalty. A careless error you disclose unprompted can be 0%.
A brown envelope from HMRC says a compliance check has started on your company. Most owners feel sick for a week. It doesn't have to go badly. Most checks end with a few questions answered, or a small correction.
This guide is for UK construction company owners. It covers what HMRC looks at in a building firm and what to do in the first 7 days. You'll also see how far back they can go and how to keep any penalty low.
It is written by the owner of a working London construction company that runs subcontractors every week. If the letter has you worried, book a free strategy call and we'll go through your systems with you.
What a compliance check is
A compliance check is HMRC checking you paid the right tax at the right time. It is not an accusation of fraud. It can cover one return, one tax or several years.
There are two kinds of letter. A nudge letter asks you to review something, often sent to many firms at once. You usually get about 45 days to reply. A formal check asks for records, a meeting or a visit, and has a deadline in the letter.
Some checks are done by phone. You can ask HMRC to write to you instead. You also have the right to let your accountant deal with them for you.
What HMRC looks at in a building firm
In a construction company, most checks start with CIS. These are the usual areas:
- Verification Every subcontractor checked with HMRC before the first payment.
- Deduction rates 0%, 20% or 30% applied correctly, with materials taken out properly.
- Monthly returns CIS300 returns filed on time and matching what you paid.
- Statements and payments Deduction statements sent to subbies and deductions paid over on time.
- Employment status Subbies who work like employees, with set hours and your tools, may be employees.
- VAT The domestic reverse charge used on the right invoices.
Checks are often triggered by a mismatch. Your CIS returns don't match what a subcontractor declared. Your labour and materials split looks odd. Or a supplier you paid is already under investigation.
Worried what HMRC will find?
Book a free call with our team. We'll go through your records, your subcontractors and the systems that keep you check-ready.
Your first 7 days
The first week decides how the check goes. Calm, organised answers make it short.
- Read the letter properly. Note which tax, which periods, what they want and the deadline.
- Call your accountant the same day. Send them the letter and authorise them to deal with HMRC.
- Gather the records asked for, and only those. CIS300 returns, statements, verification records, invoices, bank statements.
- Look for mistakes yourself. Wrong rates, a subbie never verified, a missed return.
- Ask for more time if you need it. Do it before the deadline, in writing, with a reason.
- Keep filing and paying. Every return and payment during the check goes in on time.
- Never ignore a formal notice. An information or inspection notice is a legal demand, not a request.
Sending HMRC everything you have "to show you've nothing to hide". Answer what was asked. Extra papers raise extra questions.
Need help getting your admin in order fast? Book a free strategy call and we'll go through it with you.
Not sure your CIS records would stand up to a check?
Book a free strategy call and we'll go through them with you.
How far back HMRC goes and what it costs
How far back HMRC can go depends on how the mistake happened:
| How the error happened | How far back HMRC can go | Penalty if you tell them first | Penalty if they find it |
|---|---|---|---|
| You took reasonable care | 4 years | None | None |
| Careless | 6 years | 0–30% of the tax lost | 15–30% |
| Deliberate | 20 years | 20–70% | 35–70% |
| Deliberate and concealed | 20 years | 30–100% | 50–100% |
On top of any penalty, you pay the missing tax and interest. If a subbie is treated as an employee, you can owe PAYE and National Insurance for them as well.
The penalty drops for "telling, helping and giving". Tell HMRC about errors, help them work out the right figure and give access to records. A careless penalty can even be suspended for up to 2 years if you meet conditions HMRC sets.
The CIS rules got tougher on 6 April 2026. HMRC can now remove gross payment status at once. It applies if you knew, or should have known, that a payment was linked to fraud in your supply chain. You then wait 5 years to reapply, not 1.
Contractors can be liable for the lost tax plus a penalty of up to 30%, and directors can be fined personally too. If your status was refused, read CIS gross payment status refused. For the checks to run on your supply chain, see the CIS changes from April 2026.
Get your company check-ready
The best defence is boring admin that runs every month without you.
- Verify before you pay: no first payment to any subbie until HMRC has given you a rate.
- One monthly CIS routine: returns, statements and payment on fixed dates, done by one named person.
- A status check per subbie: written down, matching how they really work on site.
- Supply-chain checks: new subbies checked for company details, VAT and a real trading history.
- Six years of records: CIS records must be kept at least 3 years after the tax year, company records 6. Keep it all for 6.
- A separate tax account: CIS, VAT and corporation tax money moved out on the day you're paid.
If the check also leaves a tax bill you can't cover, see what to do when you can't pay your VAT bill.
Admin that runs without you
Most compliance problems aren't fraud. They're an owner on site all day, doing the paperwork at midnight, months late. The fix is a system and a person who owns it.
That's what a fractional COO for construction sets up: monthly routines, checks and a calendar that doesn't depend on you remembering.
Sviat Jay runs Craftex, a London main contractor, and mentors owners one to one himself. He looks at your cash, admin and team, and fixes the weak spot first. The aim is results in about 4 months, not the 1–3 years many coaching programs take.
Want a company that's ready for any letter from HMRC? Book a free strategy call or see how our mentoring programs work. Or score your business in 4 minutes with the free Construction Business Scorecard.
The Cash Flow & Margin Blueprint
CIS, VAT reverse charge and retentions explained, plus the separate tax account habit that stops tax shocks.
Get the free guideThis is general information as of October 2026, not tax advice. Every check is different: let your accountant or a tax adviser deal with HMRC on your behalf.
Before you reply to HMRC
- You know which tax, which years and the deadline
- Your accountant is authorised to act for you
- You send only the records that were asked for
- Any mistake you found is disclosed, not hidden
- Every return and payment keeps going in on time
