Construction industry: get ready for HMRC’s new compliance tactics

This year the construction industry has seen a rise in HMRC activity with both old and new clients panicking because they have either received a nudge or a check of employer records letter from HMRC.

It seems HMRC has further intensified its compliance activity in the construction industry with contractors operating under the Construction Industry Scheme (CIS) now receiving “nudge” letters as part of a wider campaign known as a “one-to-many” campaign which was launched this month (September).

These letters are not formal compliance checks but standard letters being sent to large groups of contractors. It warns them of potential errors in their CIS submissions and urges them to review their CIS processes around subcontractor verification, applying correct deductions and ensuring employment status is correctly being detailed in monthly returns and maintaining detailed records.

HMRC’s website says they have developed the compliance strategy based on the many forms of non-compliance amongst contractors. The aim is to influence contractors behaviours so they are more likely to comply with their tax obligations which shows HMRC compliance strategy has shifted and they are now focussing on tackling widespread patterns of non-compliance. It seems HMRC is seeing the same issues coming up again and again and is now investing heavily in compliance and could explain the recent recruitment of 5,000 new officers which HMRC said would strengthen its ability to investigate and intervene.

The first thing to note is that a “one to many” approach is not a compliance check. The standard letters being sent out give contractors 45 days to respond and if no action is taken HMRC can escalate the matter to a full compliance check. This means HMRC want to see strong internal processes, accurate records, and a proactive approach to tax compliance involving a detailed review of monthly returns, employment status assessments, and accurate deduction rates.

Many clients are seeing growing delays in CIS refund claims, especially limited company subcontractors. HMRC is now routinely requesting supporting documentation before releasing repayments which includes payment and deduction statements, bank records, and reconciliations that align with the amounts claimed. Without this evidence, refunds are likely to be delayed or denied. It’s a clear warning for contractors to revisit internal processes and ensure they’re meeting their CIS obligations.

HMRC has published guidance on its website and the “one-to-many” strategy is outlined in Compliance Handbook (CH600110). The message is clear - HMRC expects contractors to be proactive, accurate, and well-documented and for those who fall short of this risk delayed refunds, full-scale enquiries or penalties.

The Markel Contractor Solutions team is already supporting its existing retainer clients by carrying out annual CIS health check that includes checking subcontractor status should HMRC knock on their door. We have also been contacted by new clients who have received these letters and are able to help even where HMRC has opened a full compliance check we are able to represent and defend our clients every step of the way.

The construction industry has always been a focus for HMRC but now the aim has shifted and HMRC has developed a new compliance strategy to tackle common forms of non-compliance. This is now no longer about routine checks but more about proactive enforcement by changing the attitudes and approaches of those operating in the construction industry. Contractors who invest in compliance now will be far better placed to avoid disruption later.

If you’ve received a letter from HMRC, or you’re unsure whether your CIS processes would stand up to scrutiny, now is the time to act. Get in touch with the Contractor Solutions team at Markel Tax—we’re here to help.