Penalties on a late form P35

Penalties on a late form P35

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My client, a limited company engaged in the construction industry, received a penalty notice for not having filed a form P35. I appealed on the grounds that the P35 was not filed as there was no remuneration paid to any person employed by the company and it would seem that this appeal has been accepted but the response came with the following additional information:

An employer is required to complete form P35 when:

* making payments to Employees/Directors that are at or above the LEL

*making payments to Employees/Directors who receive payments from another job/pension

*a Limited Company that intends to claim CIS deductions suffered.

The first two are fine but I am puzzled about the third. My client certainly does claim CIS deductions suffered but a CIS35 was filed. Should they also have filed a form P35?

Perplexed

Replies (5)

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Euan's picture
By Euan MacLennan
06th Dec 2007 11:24

No penalty
The special £100 penalties are imposed under S.98A TMA 1970, which is invoked by clause (10) of PAYE Reg.73. Nothing in Reg.73, which is headed "Annual return of relevant payments liable to deduction of tax (Forms P35 and P14)", requires the return of CIS tax deducted from the company's income which is presumably why your appeal was accepted by the real person who dealt with it rather than the simplistic computer software which issued the penalty.

By CIS35, do you mean CIS36 - Annual contractor's Return of payments to sub-contractors? If so, this form has no box to record CIS deductions suffered by the company. If tax was being deducted from payments to sub-contractors, the company should have been setting off the tax it was suffering on its income. Boxes for both are provided on the P35 and the most expedient way of obtaining a refund would have been to complete a P35, but there is no legal requirement to do so.

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By User deleted
06th Dec 2007 16:44

Penalties on a late form P35
Yes, I believe I meant the CIS36.

This client does not set off his deductions, preferring to "save up" and enjoy the repayment when his company accounts are submitted and to know that their CT liability is going to be substantially covered by this. (Each to their own!) However, you comment that there is no legal obligation to claim the set-off on a P35 appears to be the answer I was looking for and many thanks.

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Euan's picture
By Euan MacLennan
07th Dec 2007 11:34

No set off against CT
Companies have not been able to set off CIS tax deducted from their income against their CT liability since (I think) April 2002. It must be deducted from any PAYE payable for employees and sub-contractors and any excess reclaimed through the PAYE system, which means the P35.

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By User deleted
10th Dec 2007 18:30

CIS Monthly Returns
Misunderstanding. When I say my client uses the money to pay the CT, he does just that. A CIS repayment is claimed and the money used to replace the CT payment.

Are you saying that because the CIS funds were not reclaimed on form P35, then there is a penalty situation as no P35 was filed? Previously, (2005/06) the CIS funds were reclaimed separately, which I now realise is inappropriate, although this was not mentioned by the Revenue at the time.

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Euan's picture
By Euan MacLennan
11th Dec 2007 10:42

No
As I said in my first response, the most expedient way of obtaining a refund of the CIS tax deducted from the company's income would have been to complete a P35, but there is no legal requirement to do so and hence, no penalty for not doing so.

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