CIS fines issued by HMRC

This morning I had a conversation with someone at a business networking meeting who, on Saturday, received 52 envelopes from HMRC each containing four letters notifying him of fines totalling £39300 for non submission of CIS returns.  He was extremely angry, firstly, because the Revenue had previously agreed that he was no longer required to submit CIS returns and secondly because of the complete waste of time and resources sending them out.  Is there anyone out there who has had a similar experience?  

Comments

25 Identical letters

lynn2603 | | Permalink

After setting up a client for VAT online he has so far received 25 identical letters with the agent authorisation code. More waste

Lynn

CIS fines

Anonymous | | Permalink

I've had similar experiences where a client has registered late because they didn't know anything about CIS and were building a house. 

Over 100 fines individually raised for the late submission of returns.  After a (lengthy) debate with HMRC convincing them there was no tax loss and the fines were disproportionate, a letter was received upholding the appeal and listing each penalty notice amended to zero.  Then - a few days later - over 100 updated penalty notices showing penalties amended to 0.00!

More CIS Fines

ameli1 | | Permalink

Last Fri an accountant rang me for help as his client received 98 envelopes each containing penalty notices. More are expected. The current total is approaching £80k!

The Revenue really have lost the plot. 

More wasted paper and postage

Anonymous | | Permalink

I spoke to an accountnat on Friday regarding his client who had received 114 penalty notices in 114 envelopes. No doubt 114 amended notices in 114 more envelopes will be issued once HMRC accept that the penalties are disproportionate (client has used no subbies since 2005 and has told HMRC twice).

Something really needs to be done about this situation.

 

sally1964's picture

cis

sally1964 | | Permalink

We had this with a client even though we had letters from HM confirming scheme closed. SIx months later they were all reissued.

As billed our cleint for appealling against each and everyone one of the penalty notices. The bill was detailed with notes of telephone conversations and letter to and from HM.

We then sent the bill off to HM who reimbursed our client for our bill which was down to their errors.

If you ring HM re appeals I always suggest following it up in a letter asking them to let you know if they disagree with you letter and askign them to confirm scheme closed etc.!!

 

Not a new problem this I’m afraid.

markbeesley | | Permalink

In Dec 08 I discovered the company I work for had not filed any CIS returns & HMRC had us down as inactive after the change over from the vouchers although they could not say why. This resulted in some 212 penalty notices, slightly under the 45k mark, it gets really interesting when the penalty notices start coming in at 3K a pop. The appeals process was hampered slightly by HMRC not being able to start process until account was reactivated which took several weeks and failing to placing 37 notices in appeal despite my having listed all 212 twenty-one digit codes as instructed in my original appeal  letter.  

I won the appeal on the grounds of, reasonable excuse & HMRC administration errors and yes after several months duly received 212 updated notices. I can say I found the helpline staff to be extremely polite, courteous and sympathetic. Unfortunately they also gave conflicting advice, misinformation even with regards to filling in a CIS return and suffered from acute confusion as to who should be in the scheme and who should not; they also have no involvement with the appeals process so I have to say not overly helpful. I did of course point out the horrendous waste of expenditure involved in the process and was told that it was unavoidable.I also successfully appealed against a couple we received after the postal strike last year, bit of a farce for them as I managed to get the appeal in before we received all the penalty notices, the first took 27 days to reach us. I find the worst thing about is no explanation or acceptance they just say upheld.    

John Stokdyk's picture

A known SNAFU

John Stokdyk | | Permalink

Though she refrained from saying "I told you so", I had a chat with our Tax Editor Rebecca Benneyworth this morning. There is a epidemic of penalty notices across the land to the point that she is running an unofficial competition at her lectures to find out who has recieved the biggest single claim. The £80k figures here are astounding, but may apply to more than one registered company.

As the article linked above explained, the CIS penalty regime is relentless, accruing £100 for each month that a return is not filed. Going back to the scheme's introduction in April 2007, if a client has gone the full 31 months since then without filing, their penalty notices would amount to £3,100 for the first month, £3,000 the next, then £2,900 and so on. According to my calcuations, the total penalties levied come out at £49,600.

Rebecca had some pretty choice things to say about the CIS penalty arrangements and said that HMRC was aware they were not really proportionate or fit for purpose. Work is going on to create a new penalty regime, but the detailed proposals and likely implementation date have not been announced. "They try not to talk about it," she said.

I'll be putting the concerns raised here to HMRC officials and to see if they can give us any more information and will cover the results in a news article. If you'd like to make some constructive suggestions about how the CIS mechanisms could be improved, perhaps this would be an issue that could be taken up in our new Working Together e-group.

CIS Penalties

polln | | Permalink

The recent First Tier Tribunal case of SKG (London) Ltd v HMRC has been sent for further appeal purely on the grounds of proportionality, i.e. the amount of penalty in the context of the tax due. The original case cast doubt on the CIS penalty regime in the context of the Human Rights Act.
If a contractor had failed to make any returns in a 31 month period the penalties would be in excess of £90K under the current regime. It is £100 per return per month up to twelve months and there is then a final penalty of a maximum of £3,00 per return.

John your a little shy on the max penalties available to the dis

markbeesley | | Permalink

Assuming failure to file all returns up to the 19th of Feb 2010 total resulting penalties would now come to 349 with Max Liability set to £88,200.

Main reason for this is the 13 penalty cap per return. This is complicated by - the soft landing period - applicable to the May 07 to Sept 07 returns, this removes the raising of 15 notices the first 5 for May decreasing to the first for Sept.

Then by the 13th penalty being variable. - first of these is a very reasonable £300 unfortunately this increases by £300 for each subsequent applicable offence to £1,500 for your 5th - it then increases 50% to £3,000 for your 6th and any subsequent return.

This gives a max liability of £1,000 for May 07 incresing to £4,200 Oct 07 and holding until March 09, of course should the company miss the 19th 2010 filing date it will incure another £4,200 of penalties. (nice!?!) 

 

It's all about resources

silverghost | | Permalink

A year ago, HMRC were talking about a new system of penalties - less frequent, and geared to the size of business/offence. At about that time, they had clocked up the two millionth penalty notice; however, of the £200M potential yield, they had collected £10M, retracted and written off £90M and were wondering what to do about the rest.

To implement the new scheme needs someone or some committee to approve a new budget. Would HMRC break even? It's a lot easier to let the computer churn out letters and avoid blame.

 

abelljms's picture

CIS

abelljms | | Permalink

An idea for HMRC?

HMRC, "our mission is to apply super glue to the wheels of commerce wherever whenever we can particularly when unemployment is sky high"

The CIS scheme urgently needs attention from a pressure group before it kills off small contractors.

 

 

John Stokdyk's picture

Apologies for the inaccuracies

John Stokdyk | | Permalink

I was trying to summarise comments Rebecca Benneyworth made to me on the phone, without having the full details of the penalty regime immediately to hand. She's now participating more actively in the Working Together discussion group where the issue has been raised (and elements batted back for being policy rather than operational issues).

Please accept my apologies for getting the facts wrong. I did a lot of work on the subject before the CIS came into force, but have lost touch with the technical details. I'll go back to my software subjects and try not to muddy the tax waters too much - but will continue to keep an eye on this conversation.

CIS Penalties

aes-tax | | Permalink

I believe that HMRC provided a 'soft landing' for the first 6 months of the scheme during which no penalties would be charged provided

that any outsatnding returns were submitted by  19 October 2007. Any returns outstanding at that date would then attract a penalty in

the usual way. In the example give the first six months would therefore be liable to a penalty meaning 367 penalty notices and a

penalty of

£106300 (2007/08  £50400 (£4200 x 12) plus 2008/09 £50400 (£4200 x 12) plus 2008/09 £5500 (1000 + 900 +....+ 200 + 100))

One heck of a tax rate if no tax is actually required to be paid over to HMRC!  

Procedural discrepancy

markbeesley | | Permalink

We were still granted the soft landing period despite not filling our first return until 17-03-09.

I was told at the time that it was being universally granted.  Of course this only reduces the  overall potential liability by some £1,500, By Cancelling 15 penalties before issue. 

John Stokdyk's picture

HMRC responds

John Stokdyk | | Permalink

The material you put up here has generated a huge amount of interest from other members who read my summary article, Advisers buried in CIS penalty avalanche.

The article also stimulated a response from HMRC's press office, who advised me: "Incorrectly issued penalties are not the result of a system problem but failure to correctly follow procedure - this is being put right."

The spokesman offered further background on the situation, including the explanations that:

  • In a very small number of cases multiple penalties are being issued to contractors in respect of their late, or non-filed, contractor monthly returns;
  • In some cases, the number of penalties being issued is correct, whereas in other cases it is not;
  • The number of contractors getting multiple penalties like this is very small and it is only likely to affect those contractors for whom we have not had a valid address for quite a while and whose record has lain dormant for months or years. Nonetheless we take this seriously and have identified the problem;
  • Contractors for whom we still do not have a current address have their penalties issued to the last known address;
  • Contractors that have been submitting monthly returns regularly are very unlikely to be affected by this issue;
  • This has had the effect of inadvertently “notifying” the CIS computer system that a contractor (who for example has ‘gone unknown’ or has been dormant for 3 or more years) has failed to send in his returns since 6 April 2007.  Automatic penalties are therefore issued by the CIS computer system.  At the last issue, these can amount to a maximum of 336 penalties in 84 separate envelopes.
  • When the penalties are subsequently cancelled, ‘correction’ penalties of zero are issued per each issued penalty.

* * *

Thanks for brining the situation to our attention, and that of the wider AccountingWEB community. There has also been a discussion about it in our new Working Together e-group, but it may well be that suggestions that the CIS regime be scrapped are beyond the scope of that group's strictly operational focus.

 

Action pending SKG outcome?

Anonymous | | Permalink

We have a case of approx £50k penalties, where there is really no reasonable excuse but clearly the penalties are totally disproportionate to the offence of filing late returns.

HMRC have refused our appeal.  Independent review upheld the original HMRC decision.

We have been advised that with no real reasonable excuse and just relying on the proportionality argument that we would not be advised to take the case forwards to Tribunal.

However, clearly the outcome of the SKG case may be of direct help to our case.

The question is what do we do now?   If we do nothing and then SKG win the case are we too late?   If we completed a Tribunal application form would they be able to just put it on hold pending SKG?

CIS Penalties

aes-tax | | Permalink

According to the Tribunal website HMRC have withdrawn the penalty notices and so the case will not be returning to the Tribunal for a

decision. I have been unable to find any comment as to why the penalty notices were withdrawn so the rest of those who have received

these totally out of proportion penalty notice would seem to be on theri own when it comes to taking the matter forward - possibly to

the Tribunal.

Is anyone aware of any comment on the SKG case by HMRC - or anyone else?

 

SKG update

Siân Woods | | Permalink

HMRC withdrew the appeals after reaching an agreement with SKG.  The case is therefore dead and it does not set any precedence for other taxpayers except that there is still a real question mark over the legality of the penalties.

It is arguable that it is more beneficial to others in SKG's position that this case was not determined by the courts as the penalties were fairly low.  It is possible that the courts would have ruled in HMRC's favour making any further cases difficult to argue solely on the grounds of disproportionality.  We are pursing cases through the tribunals were the penalties are £40 -50K.  It is much easier to argue that these sums are disproportionate rather than £2-3K.

In answer to Anon's question above you it will depend when the internal review was completed.  You have 30 days from the date of HMRC's letter to list the case with the tribunal.  If this is not done HMRC win by default.  If you are within the 30 days appeal to the tribunal, if nothing else this will give you more time to argue/reach a compromise with HMRC.  If the 30 window has already passed you can still make a late appeal.  You will need to specifically ask the tribunal to accept a late appeal and give your reasons why it is late.  There is some guidance on the tribunal website.  It would have been possible to ask for the case to be put on hold pending the outcome of SKG but as this case has already been determined you will have to wait for the next case.

Tribunal appeal?

Anonymous | | Permalink

Sian

Thank you for the helpful information.

We are within the 30 days window from the HMRC independent review decision.

Our dilema however is that we don't really have any grounds other than proportionality of the penalties, and we've taken advice from a firm which takes these cases and been advised that they wouldn't advise a tribunal appeal on proportionality alone.

Do you know if there are other cases lined up after SKG which will argue the same point?   Ie we could make a tribunal appeal in the expectation of things just being put on hold until another case settles the point?

We haven't taken a case to the tribunal ourselves before and so certainly wouldn't want to put ourselves in the position of becoming a "test case"!   Similarly, if there is a limited chance of success then the client is going to be reluctant to spend out on specialist representation.

Nothing to lose

Siân Woods | | Permalink

The point is if you don't appeal to the tribunal HMRC win and the money is due.  There is no further opportunity to negotiate.  If you appeal it gives you further time to reach a compromise with HMRC.  If you are not able to reach an agreement with them you can review whether you wish to continue with the appeal.  You therefore have nothing to lose by making it.

There are cases listed with the tribunal that are arguing on this point, we have a number of them, so, if you do appeal, it should be possible to have things put on hold pending their outcome.  As well as offering fixed fees we also offer no win no fee arrangements so it is possible to get specialist help without the risk of huge fees if the client loses.

If you would like to chat more please email me on s.woods@accountaxconsulting.com

CIS Unsuccessful Appeal against Late Notification Penalties

Anonymous | | Permalink

My client is a sole trader and voluntarily contacted HMRC to report that he should have registered for CIS thirteen months earlier. He had one sub contractor from whom he omitted to deduct tax over a period of 9 months because of a misunderstanding between him and the sub contractor. The error only came to light when my client left the books and records with us to prepare his SA Return. The missing CIS returns were completed and a liability of just over £5,000 tax was identified, and the client asked HMRC for some time to settle.

HMRC then issued 133 separate penalties amounting to £38,400. We submitted an appeal on the basis that the penalties were disproportionate for a non-wilful one-off mistake by the taxpayer. The appeal was dismissed and the £38,400 remained payable. We requested reconsideration of the appeal outcome. The review of the appeal concluded that the decision be upheld.

We then submitted an appeal to the Tribunals Service who have dismissed the appeal against 122 penalties and modified downwards the remaining 11. The trader now faces bankruptcy as he cannot settle the new balance owing on penalties which the Tribunal Service has deemed correct totalling £13,300.

They now tell me that I can appeal to the Upper Tribunal, but only if I can show that the Tribunal applied the law incorrectly, conducted the proceedings in breach of proper procedures or failed to give adequate reasons for its decision.

Is it time to just give up?

Will the least person leaving please turn off the lights.

 

If this were my client I would now

geoffwolf | | Permalink

suggest the client see an Insolvency practitioner with a view to going into an IVA.  

johnjenkins's picture

Penalties

johnjenkins | | Permalink

That's one of the reasons I advise all my clients to trade as a Limited Company.

Unsuccessful appeal

Siân Woods | | Permalink

Without seeing the particulars it is difficult to give advice but I have a client in a similar position.  We have identified a number of grounds of appeal, errors in law as well as the proportionality argument.  These may also be relevant to your position.

If you do decide to continue with your fight you have 56 days from the date of the Tribunal's decision to seek permission to appeal to the Upper Tier.  In order to do so you must have "full written findings of facts and reasons".  If you have not already got these you have 28 days from the date of the decision to request them.  Time is therefore of the essence.

If you want some more specific advice please email me on s.woods@accountaxconsulting.com

johnjenkins's picture

Equitable liability

johnjenkins | | Permalink

There are further options.

Equitable Liability, athough HMRC don't like this.

Ombudsman

MP.

Whatever you do don't give up. Perhaps one of the newspapers might take your case.

CIS penalties

TinaPrice | | Permalink

I have just received my clients accounts and seen invoices that would require them to register as a contractor.  Although, I am confident, but need verification,  that the company they have hired would be paid gross and therefore no payments due, is it likely that the fines and penalties will also apply for non compliance.

 

Thanks

johnjenkins's picture

CIS

johnjenkins | | Permalink

The rules are quite clear. If you are a contractor in the construction industry and you pay subbies then you have to register with HMRC and verify that the subbies are genuine and whether to deduct 30%, 20%, or they are exempt.

Having said that, it might well be that if accounts are submitted no one will pick it up.

The problem you have is, once you register your client you will receive monthly returns. These will now be late and so automatic penalties are generated. You can go down the appeal route but I wouldn't rate your chances of getting them vacated.

You must discuss the options with your client and let them make the choice. Although you have picked up a potential can of worms ultimately it is the tax payers' decision what to do about it.

Good Luck.

CIS Penalties

TinaPrice | | Permalink

Thanks John,

Am I correct is stating that for say a return that is 19 months late, the first penalty will be £1200(10*12)+£300 first time final penalty. For the following month £1200 + £600 and so on until they reach the sixth failure and then the £3000 final penalty applies to all returns that are outstanding for greater than 12 months.

 

 

johnjenkins's picture

CIS penalties

johnjenkins | | Permalink

For returns that have less than 51 subbies on it each return that is 1 month late there is £100 penalty. There is £100 penalty added on for each month it is late up to a maximum of 12 months. After 12 months a further £3000 is added. So you can see how penalties add up. This penalty also includes nil returns.

If you go on HMRC home page and type in CIS penalties it is explained in greater detail.

Definitely

Siân Woods | | Permalink

I had a client who failed to register, realised their mistake and made full disclosure to HMRC.  There was no tax at stake and they were hit with penalties in the region of £30K.

You are right that the penalties are

£100 for the first 12 months.

The first return that is over 12 months late attracts a £300 penalty, the second £600, £900 for the third, £1,200 for the fourth, £1,500 for the fifth and £3,000 for the sixth and subsequent returns.

So for registering 19 months late the penalty is £21,500.

As a point of interest the penalty for a contractor who failed to register when the scheme started is up to £100,800 even if no tax was due. 

mr. mischief's picture

joke

mr. mischief | | Permalink

I have a CIS client who got 28 notices each for £100.  We successfully appealed all 28 of them.

One month later, my client got another 28 letters from HMRC - each demanding a CIS late payment of.....

£0.

Nil.  Zero.  Nowt.

Waste in the public sector? - give me 10 weeks with carte blanche to attack HMRC's processes and I'll clear the country's deficit single handedly!

 

 

 

Tax tribunal

cjtrevor | | Permalink

Having run out of other options, we have appealed to the Tax Tribunal re our client with £57,000 penalties, on the ground that the penalties are not proportionate as required by European Law / Human Rights Act.

We have received a reply stating that the appeal will be decided on the paperwork and that no hearing will be needed.

I was slightly surprised by this given the contentious nature of the grounds for appeal.

Reducing to new Oct 2011 penalties

cjtrevor | | Permalink

I see that HMRC now say they will voluntarily reduce existing CIS penalties down to the new levels coming in at Oct 2011.  See http://www.hmrc.gov.uk/cis/penalties-late-returns.htm

Our Tribunal was considered by a Judge in September, where it was ordered that the appeal was put on hold pending the outcome of the Enersys case which will be heard by the Upper Tribunal next year.  (They did give the option for us to proceed to a full hearing instead but the option of holding was fine for us).

I believe that the penalties in our case will be significantly reduced under the new levels.

Is anyone aware of any reason why there would be any disadvantage in asking what the revised penalty would be under the new arrangement?   It may be so significantly lower than the client would accept it and our appeal would be withdrawn.  But if it is still a substantial amount, I presume the appeal could continue unaffected?

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