CIS Audit

If you are a business that chooses to use CIS as the payroll model for your construction business it is important you conduct regular audits and due diligence of your supply chain to ensure compliance. Carrying out checks regularly of your supply chain will make the prospect of an HMRC audit a much less daunting one.

We’ve put together some tips and tricks to help you prepare for your audit as well as what to expect from an audit. 

What to expect from an HMRC CIS audit?

If you receive a letter from HMRC informing you that they will be conducting a CIS payroll audit, the most important thing is not to panic! In many cases, this is just a routine check to ensure you are 100% compliant and if you have been carrying out your own due diligence, using an accredited provider then you have nothing to worry about. To ensure you are prepared for the audit, ensure you have all documentation HMRC will want to review. This can include:

  • Payroll records
  • Subcontractor details
  • Payment records

HMRC will then arrange a meeting with you to explain the audit process and allow you to ask any questions. 

After the initial meeting, HMRC will conduct a document review to ensure workers have been correctly classified as employees or subcontractors and that the appropriate tax deductions have been made. They will also carry out something called “Employee Status Determination” which is a process that analyses supervision, direction, control, substitution and Mutuality of Obligation to further ensure workers have been classified correctly. They will then verify payments, and CIS deductions and ensure you comply with reporting obligations. If the auditor finds any discrepancies or errors, they will discuss these with you to allow you to make corrections or adjustments, in some cases penalties may also be issued. 

Once this process has been completed the auditor will arrange a final meeting with you to discuss the audit findings before issuing the formal audit report. 

How can I prepare for a CIS audit?

There are lots of things you can do to prepare for a CIS audit, but we’ve outlined our top 5 to keep things simple.

  1. Do your research and choose an accredited CIS payroll provider. Look for accreditations such as Professional Passport.
  2. Keep accurate records to ensure all your paperwork is in order should that HMRC letter arrive.
  3. Ensure your provider is providing regular reports and that monthly CIS returns are submitted on time.
  4. Keep lines of communication open between all stakeholders including workers and your payroll provider.
  5. Don’t be afraid to ask questions! If you are unsure of something or think something isn’t quite right, speak to your payroll provider as they will be able to help you.

What can be classed as non-compliance during a CIS audit?

The list of items that can result in non-compliance is a long one, however, if you are using an accredited provider for CIS payroll you shouldn’t have any of these problems. Here a few of the things that can lead to non-compliance:

  • Failure to verify worker’s CIS status with HMRC or failing to register new workers under CIS.
  • Incorrect calculations or deductions of tax.
  • False self-employment, due to incorrect classification.
  • Contract terms not being clear or not being adhered to.
  • Inaccurate record keeping.
  • Failure to comply with legislation updates.
  • Non-compliant subcontractors.

If you would like to learn more about the audit process, or speak to our expert team about how CIS can be the right choice for your business – please contact us.