How to Pass HMRC’s CIS Compliance Tests

May 14, 2025 | Blog

Whether you’re applying for CIS gross payment status or trying to maintain it, passing HMRC’s CIS compliance tests is essential. Fail, and you could face:

  • Immediate loss of gross payment status

  • Higher tax deductions at 20% or 30%

  • Delays to cash flow

  • Increased scrutiny and penalties

In this blog, we’ll explain what HMRC checks, how to pass their CIS compliance tests, and how to stay penalty-free and cash-flow positive.


What Are HMRC’s CIS Compliance Tests?

To apply for or retain gross payment status, HMRC expects your business to meet certain compliance standards. These include:

1. Timely Tax Returns

You must submit:

  • CIS returns (monthly, by the 19th)

  • PAYE submissions (FPS/EPS on time)

  • VAT returns (quarterly or monthly, as applicable)

  • Corporation Tax returns (CT600 on time)

2. Timely Tax Payments

You must pay:

  • PAYE and National Insurance

  • VAT

  • Corporation Tax

  • CIS deductions (if applicable)

Payments must be on or before the deadline. Late payments—even by a few days—can cause a compliance failure.

3. Accurate Record-Keeping

HMRC expects you to:

  • Keep full records of subcontractor payments and CIS deductions

  • Store verification numbers and deduction statements

  • Clearly record tax liabilities and submissions

  • Separate labour from materials on invoices


🚧 What Happens If You Fail a Compliance Test?

Failing a compliance test can result in:

  • Refusal or withdrawal of gross payment status

  • Higher deduction rates (30%) on payments received

  • Delayed refunds or offsets

  • Possible investigation or penalty

HMRC reviews your compliance at least annually, and failure to meet the standards may require 12 months of clean compliance before you can reapply.


🛠️ How to Pass HMRC’s CIS Compliance Tests (Step-by-Step)

Step 1: File All Tax Returns On Time

Set up calendar reminders or use accounting software to ensure you never miss:

  • CIS returns (due by the 19th each month)

  • VAT and PAYE submissions

  • CT600 annual return

Tip: Late returns—even if no tax is owed—still count against your compliance.


Step 2: Pay Taxes Promptly

Ensure all liabilities are paid:

  • Before or on the due date

  • In full (partial payments do not count)

  • Via the correct HMRC reference and payment method

Pro tip: Set up Direct Debits to avoid human error and late payments.


Step 3: Keep Detailed and Organised Records

You must maintain clear, complete, and retrievable records for:

  • CIS verifications

  • Deduction statements (sent to subcontractors)

  • Payments made and received

  • Contracts and invoices

Use cloud software like Xero, QuickBooks or BrightPay to automate CIS tracking.


Step 4: Conduct Monthly CIS Health Checks

Before the 19th of each month:

  • Ensure all new subcontractors are verified

  • Calculate and apply the correct CIS rate (0%, 20%, or 30%)

  • Submit your return and issue deduction statements

  • Pay the deductions to HMRC


Step 5: Review Compliance Quarterly

Hold a quarterly internal review or work with your accountant to:

  • Review all HMRC deadlines and submissions

  • Reconcile tax payments

  • Ensure subcontractor CIS details are up to date

  • Prepare for HMRC audits or reviews proactively


⚠️ Common Reasons Construction Companies Fail CIS Compliance Tests

  • Submitting a CIS return late by even one day

  • Forgetting to verify new subcontractors

  • Applying the wrong deduction rate

  • Mixing up VAT and CIS liabilities

  • Delaying PAYE payments due to cash flow issues

  • Not responding to HMRC correspondence promptly


👷‍♂️ Real-Life Example: Turning a Failing CIS Record Around

We worked with a civil engineering contractor whose gross payment status was withdrawn due to two late PAYE submissions and a missed CIS return.

We:

  • Reviewed and corrected all past filings

  • Created a monthly compliance checklist

  • Set up automatic reminders and filing software

  • Reapplied for gross status after 12 months of clean compliance

They successfully regained their status and now manage CIS confidently with zero penalties.


📞 Need Help Passing HMRC’s CIS Compliance Tests?

At Thomas Emlyn Ltd, we specialise in keeping construction businesses compliant, efficient, and penalty-free.

We’ll help you:

  • Pass HMRC’s CIS compliance tests

  • Regain or protect your gross payment status

  • Set up efficient, automated systems

  • Communicate with HMRC on your behalf

📞 Book a discovery call and stay on the right side of HMRC—without the stress.


📌 Final Thoughts

HMRC’s compliance tests for CIS aren’t complex—but they are strict. A single missed deadline can cost you gross payment status and slow your business down. With the right systems and support, staying compliant is easy and profitable.

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