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What contractors need to know about HMRC’s CIS nudge letters
27th March 2025
HMRC have begun a new nudge letter, or ‘one to many’ letter, campaign targeting contractors that are part of the Construction Industry Scheme (CIS). These letters intend to notify contractors in the property and construction industry to verify their CIS tax status of their subcontractors and to ensure that the correct CIS tax deductions and payments are being made and reported, respectively.
It’s important to act promptly to avoid potential compliance issues that may arise by not declaring CIS tax deductions and payments. This article explains more about CIS, HMRC’s nudge letter campaign, and the necessary steps you should take if you receive a CIS nudge letter from HMRC.
What is CIS?
CIS shifts the responsibility of making tax deductions from the subcontractor to the contractor. Subcontractors are not required to register for the scheme, although it may be favourable for them to do so, to avoid tax being deducted at a higher rate. Contractors, on the other hand, will be required to register for CIS, if subcontractors are being paid for construction work.
HMRC’s nudge letter explained
HMRC’s latest nudge letter campaign began on 22 July 2024. The campaign targets known contractors to HMRC who have been applying incorrect tax rates for their subcontractors.
The nudge letters encourage contractors to confirm their subcontractors’ CIS registration status before any payments are made to subcontractors. This can be done via HMRC’s free online service. The online service will tell you if a subcontractor is registered for CIS and the correct rate of tax contractors should be deducting.
The expectation is that HMRC will be distributing more letters in the coming weeks and months regarding CIS in an effort to combat fraud in the property and construction industry.
What you should do if you receive a CIS nudge letter
Letters received from HMRC should not be ignored. To mitigate the costly risks of resolving any issues relating to CIS and further action being taken by HMRC, you should take the following steps:
- Review your position as a contractor and verify the CIS status of all your subcontractors
- If you are confident that taxes have been filed correctly, authorised personnel from your business, such as a director, should respond to HMRC explaining why no additional charges are due
- A disclosure should be made to HMRC if CIS returns have not been filed, or submitted incorrectly
Failure to respond to HMRC is likely to result in a compliance check. This would mean that you have less control over the process, HMRC will scrutinise and demand further information, and the overall process will impact you negatively with time and cost.
It’s wise to address any CIS-related issues as soon as possible, whether you have received a nudge letter or not. Any delays or waiting for HMRC to intervene would only impact you further financially, so it’s advised to take action at the earliest opportunity to reduce your liability.
How to make a disclosure to HMRC
CIS is a complex area and mistakes can be made. If you believe you have made mistakes in your CIS returns, you may be able to amend previously filed returns. However, if returns were not filed, or there are significant omissions, you can notify HMRC by informing them that your business intends to make a disclosure under the Digital Disclosure Service. In this case, you would prepare a full disclosure covering all years within the scope of HMRC assessment.
For cases involving deliberate tax evasion, disclosures under the Contractual Disclosure Facility (Code of Practice 9 or “COP9”) would be a more suitable option.
Given the complexities of CIS obligations, seeking professional advice in this area is essential to avoid the costly repercussions of filing incorrect CIS returns. If you need support responding to HMRC, correcting errors, or making a disclosure, Menzies’ Tax Disputes and Disclosures team is available to assist you through the process and help safeguard your business from further liabilities.
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