Is there a £3000 cap on CIS penalties

Is there a £3000 cap on CIS penalties for new contractor

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Hello everyone

I'm in the process of taking over a number of clients for an accountant who is retiring and have come across a few concerns over changes in legislation that the previous accountant was not up to speed on.

One client in particular has been a contractor and should have registered and submitted returns for CIS scheme over 3 years ago.  The previous account was not aware of the responsibilities of contractors under CIS and never registered the client as a contractor. No returns were ever submitted, no payments ever made.

There have been very few contracts over the 3 years and only a small amount of tax has been deducted.  The client has actually been subject to subcontractors tax to a greater extent, which has never been set off against income tax or corporation tax (the client moved from sole trader to LTD company).  The net effect is that the client is actually due some tax back.

I know that the penalties are quite extortionate for failing to register, but hoped they would be capped at £3000 from reading previous notes on here about it.  However upon phoning the help line with a "general" enquiry he advised there was no cap for new contractors.  If there is no cap - the penalties for failing to register and not filing returns will be astronomical.  Which seems absolutely crazy - when no actual tax avoidance has occurred.

Does anyone know if the cap still exists, or how lenient they might be under these circumstances. I have to break the news to the client tomorrow and I'd like to give him some idea of the consequences...

Help!!

Replies (7)

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By John R
15th Mar 2017 16:07

It should not be a problem for the client. As you say, your predecessor was not up to speed on the new rules so surely it will be him, you or his/your insurers who will have to foot the penalty bill. You should certainly disclose this immediately to your PI insurer.

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Replying to John R:
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By TinaPS
15th Mar 2017 20:18

it's ultimately the clients responsibility, though highly likely he will want to take it up with the previous accountant

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By cbp99
15th Mar 2017 16:33

Refer you to TC04526 Parkinson v HMRC. Parkinson was a gardener, described by his accountant as a "model client operating SA", and by the FTT as a "hard-working family man", who inadvertently fell within the CIS by undertaking a job to erect hoardings around a building site, and, being busy, sub-contracted the work. The total paid to subcontractors was £6,158.
HMRC penalised him £31,500 (sic).
HMRC eventually mitigated this to £3,083, and the FTT expressed the hope that HMRC would use its discretion to reduce this by a further £2,100.
However the current situation is better as from April 2015 HMRC will not charge a penalty for a missed return, if no return is due for that month (CIS Guide para 4.18).

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Replying to cbp99:
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By TinaPS
15th Mar 2017 21:07

So, just to clarify - if the client has only made 10 deductions, over 10 separate months, he will only incur penalties on those 10 returns.

To calculate that penalty he will be charged £100 per late return when it is 1 month late.
A further £200 when it is 2 months late
A further £300 when it is 6 months late
and a further £300 every 6 months after that - so a return due in June 2014, would incur a penalty of £1800 for that single return.

If he has failed to register as a contractor and doesn't have all of the appropriate records he will incur a further penalty of £3000.

Is there no cap of £3000 for late filing of returns with new contractors as discussed on previous threads on accounting web?

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By cbp99
17th Mar 2017 11:00

The penalties for late returns are listed at para 4.18 here (I assume correctly)
https://www.gov.uk/government/publications/construction-industry-scheme-...

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By silverghost
20th Mar 2017 10:53

The details of the £3000 cap for new contractors are set out in the HMRC CIS manual at 65080.

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By Zarozinia
20th Mar 2017 11:30

I worked for a company who cut grass for schools. One client, over 10 years ago was having building work done and we cleared the ground first. The client deducted tax from our payment despite us not being registered for CIS. We have the letter from HMRC saying that we are beyond the scope of CIS and should not have suffered deductions. We have never received the amount deducted.
About 5 years ago we received a penalty notice out of the blue for £185000 for failing to register and cumulative penalties for each monthly return missed. Their letter was worthless but we eventually had to settle for a reduced penalty of £10,000 which our accountants paid half of and now I have to send a nil return each month. I do not dare click the ' I don't expect to make deductions in the next 6 months' box.

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