CIS Scheme Declaration to HMRC

New client has been in CIS scheme as contractor since Oct 2010 but has only been deducting tax from 3 people since then. Company misunderstood scheme and thought that anyone submitting an invoice to them would not be caught by scheme. There may be 10-15 subbies that have not been verified or had deductions since then and I need to know the right way to handle this.

I have warned client that HMRC will expect tax to be paid even if all subbies have paid their own tax and that there could be penalties. Client is extremely honest and willing to take whatever advice I give.

I think we need to do a schedule of all subbies who were not shown on monthly returns - labour separate from materials and amounts together with tax that should have been deducted. First client will need to verify them with HMRC - will do in next day or so. I think we need to declare full information by the end of the week.

Client thinks most subbies - well-known to company as being honest - will have accounted for their tax. I have warned her this might not cut much ice with HMRC.

Can you please comment on my approach. What else should be done?