Common Questions About PAYE / CIS Irregularities

If you’ve received a letter from HMRC about PAYE or CIS compliance, it usually means they’ve found discrepancies or missing information in your payroll submissions or subcontractor deductions.

These investigations are common — especially in the construction industry, where records, subcontractor status, and deductions can easily become complex.

Below are the most frequent questions people ask us when facing PAYE or CIS irregularities.

What are PAYE and CIS irregularities?

“PAYE irregularities” happen when your payroll records don’t match what’s been reported to HMRC — for example, incorrect tax or National Insurance deductions, missing submissions, or late payments.

“CIS irregularities” refer to issues within the Construction Industry Scheme, such as:

• Paying subcontractors without proper verification
• Deducting the wrong tax rate (20%, 30%, or gross)
• Failing to file monthly CIS returns
• Not keeping full records of payments and deductions

Even small mistakes can trigger an HMRC compliance check, especially if they repeat over time.

Why is HMRC investigating my PAYE or CIS records?

HMRC may investigate because:

• Real-Time Information (RTI) submissions don’t match amounts paid
• CIS returns show inconsistent or missing subcontractor data
• Large fluctuations in payroll from one month to another
• Missing or late PAYE / CIS payments
• Reports of incorrectly treated workers or unregistered subcontractors

They may also launch checks after receiving data from other agencies or comparing your business figures against industry norms.

What documents will HMRC ask for?

HMRC will want to review:

• Payroll records (wage sheets, payslips, P60s, P45s)
• RTI submission history
• CIS monthly returns and deduction statements
• Subcontractor verification numbers
• Employment contracts
• Contracts for self employed contractors or consultants
• Bank statements and payment records
• Sales and purchase invoices

It’s essential to gather these promptly — missing or incomplete records can make the situation worse and delay resolution.

What happens during a PAYE / CIS compliance check?

HMRC will usually start with an initial letter or call, requesting specific records.

They may then:

• Visit your business or accountant’s office
• Review payroll software and RTI submissions
• Check subcontractor status and payment details
• Ask for explanations on irregular or missing entries

If they find underpayments or misclassifications, they can recalculate liabilities, issue penalties, and charge interest on unpaid tax.

What are the most common PAYE and CIS mistakes?

Some of the typical errors include:

• Not submitting FPS (Full Payment Submission) on time
• Paying workers off-payroll without deductions
• Incorrect or missing CIS tax deductions
• Treating employees as subcontractors incorrectly
• Using unverified subcontractors
• Gaps in filing or no submission of declarations

Even if these errors are unintentional, HMRC may still impose penalties — although showing you’ve acted in good faith and corrected records can reduce them.

Can I fix PAYE or CIS mistakes before HMRC contacts me?

Yes — and it’s always better to do so.

If you identify irregularities yourself (for example, unpaid deductions or missing CIS returns), you can make a voluntary correction with HMRC.

This proactive step often leads to reduced penalties and shows cooperation.

A qualified adviser can help you calculate underpayments, prepare corrected submissions, and ensure your records are complete.

What are the penalties for PAYE / CIS errors?

Penalties depend on the type and frequency of the error:

• Late or missing submissions: fixed fines per month
• Incorrect deductions or payments: repayment of the tax plus interest
• Failure to verify subcontractors: additional tax liability
• Deliberate concealment: higher penalties or potential fraud referral

The longer errors go uncorrected, the more expensive they become.

Can PAYE or CIS issues lead to a tax fraud investigation?

They can — but only if HMRC believes the errors were deliberate or systematic.

For example:

• Paying subcontractors in cash with no CIS deductions
• Creating false invoices
• Repeatedly under-declaring payroll

In these cases, HMRC might escalate the matter to a COP8 or COP9 investigation.

If your irregularities were accidental, showing evidence and cooperating early can prevent that escalation.

How long does it take to resolve PAYE / CIS issues?

That depends on how complex your records are:

• Minor issues (like late RTI filings) can be cleared in weeks
• Multiple-year reviews or unfiled CIS returns can take months or longer

Keep in mind that document preparation and account reconstruction take time too — especially if records are incomplete or inconsistent.

Having all payroll, CIS, and bank data organised will help speed up the process.

How can a tax adviser help with PAYE / CIS irregularities?

A specialist adviser can:

• Review your PAYE and CIS submissions for accuracy
• Prepare reconciliations and identify gaps
• Communicate with HMRC on your behalf
• Negotiate penalty reductions and time-to-pay arrangements
• Prevent future compliance problems

In short — our professional support saves you time, stress, and often a lot of money.