Advisers buried in CIS penalty avalanche

Members of AccountingWEB.co.uk’s Construction industry accountants discussion group have brought to light an epidemic of multiple CIS penalty notices running into tens of thousands of pounds for individual clients.

Over the past few weeks, advisers have reported clients receiving anything from 25 to 212 penalty notices, in separate envelopes, notifying them of fines ranging from £39,300 to £80,000.

The staggering size of these penalty levies results from the way the tariff increases by £100 each month from an initial sum of £100.

Most of the advisors in the discussion group reported that they were successful in appealing against the penalties on the grounds that the fines were disproportionate, reasonable excuse and HMRC administrative error where the department had agreed the clients’s schemes had closed.  In these instances, the clients then received multiple notifications that the penalties had been amended to £0.00.

One advisor was successful in getting HMRC to reimburse the client for the accountants’ bill. The irritation and administrative hassles caused by the penalty avalanche is unsatisfactory for all concerned and the department confirmed that work had been undertaken to look at the situation where clients received unexpected penalty notices. However with a Budget looming, the department has not yet been able to confirm what proposals might have emerged from these deliberations, or when they are likely to be put out for consultation.

The specific penalty notice issue will resolve itself when the new penalties for late returns in Finance Act 2009 swing into force - although a firm commencement date has not yet been finalised. Under the new proposals there will be a fine of £100 when the return is late, followed by a further £200 when the return is two months late. Thereafter penalties arise at 6 months late and are tax geared with a minimum of £300. However, the maximum penalty that can apply at the point of late registration will be £3,000, irrespective of how many returns have been missed (ref para 13 Sch 55 FA 2009). Although this is a substantial fine, it compares well with some of the penalty notices currently being raised.