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CIS penalties – Just days away! By Rebecca Benneyworth

15th Oct 2007
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Penalties for late CIS monthly returns swing into action on 19th October. Any returns due by that date, but not filed by then will attract a minimum penalty of £100 each. The minimum rate of penalty applies to the smallest contractor with anything from nil to 50 subcontractors. Those contractors with more subcontractors will suffer penalties at a rate of £100 per 50 subcontractors per month.

HMRC’s press release on the state of filing at the due date in September 2007 reveals some worrying trends. The statistics are: (all figures in thousands)

Received to date
Filed on time
156 (89%)
104 (59%)
148 (87%)
95 (56%)
144 (85%)
82 (49%)
124 (73%)
100 (59%)
125 (75%)
95 (57%)

The statistics indicate that after the first month, when both the number of returns submitted at all, and the number that were submitted on time peaked, compliance has declined. In particular, for those returns due on 19 July, less than half were submitted on time, meaning that some 87,000 returns were not filed by the due date.

Even if all of these returns had only been due to pay a fine of £100 (and some may well have been in respect of more than 50 subcontractors) this would have generated £8.7 million in penalties in this month alone. Had the fines been in operation from the very start of the new scheme in April (first returns due on 19 May) HMRC would have been collecting at least £62 million in fines over the summer! Taking the first five months in total only 56% of returns due have been submitted on time, and 18% of returns in total remain outstanding at 20 September.

Perhaps more worrying is the suggestion by the figures that around 11% of contractors have submitted no returns at all since the new scheme commenced – perhaps in the mistaken belief that if they had made no payments they were not liable to make a return. Nil returns must be made, either on paper, over the internet, or by telephone to the CIS helpline on 0845 366 7899. This 11% represents around 20,000 contractors, who will be facing a fine of at least £600 if these, together with the September return are not all filed by 19 October – that is a total of £1.2 million from these alone! Waiting another month will cost another £700, with October’s return late too.

So the very urgent message is, “Get up to date as quickly as you possibly can”!

Those contractors who haven’t got up to date yet, but who are registered for gross payment under the scheme are facing another problem. October also sees the commencement of the compliance review process, under which contractors will be reviewed periodically to ensure that they have complied with their tax obligations throughout the period since 6 April 2007. Every contractor will be subject to review on an annual basis, but the date of the review will not be known. If at the date of the review, the contractor no longer meets his compliance obligations in the previous 12 months, he will be notified that he is to be reclassified as registered for net payment. He will then have 90 days to appeal, after which he will move to net payment.

The rules allow certain breaches to be overlooked, and the following will not compromise gross payment status :

Any, or all of the following in any twelve month period will be ignored :

  • Three late submissions of your CIS monthly return – up to 28 days late.
  • Three late payments of CIS/PAYE deductions – up to 14 days late.
  • One late payment of Self Assessment tax – up to 28 days late.
  • Any employer's end of year return (form P35) made late.
  • Any late payments of Corporation Tax – up to 28 days late, including where any shortfall in the payment has incurred an interest charge but no penalty.
  • Any Self Assessment return made late.

However, it is clear from this, that once the compliance review process begins, submitting a single monthly contractor’s return more than 28 days late will inevitably result in the reclassification of the contractor from gross to net. So contractors who do not get up to date by 19 October also risk losing their compliance record. The reclassification will not come immediately for all contractors – it will depend on when the compliance review happens, but contractors should be in no doubt that this will be the eventual result.

Surviving the New CIS - Sage whitepaper

If you are a contractor and have not yet tackled your CIS returns and subcontractors' reports, it's not too late! Rebecca Benneyworth has collaborated with Sage's Construction Team to produce a practical guide on "surviving the new CIS". Click here to download the free guide now.


Replies (7)

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By abelljms
16th Oct 2007 09:41

nil returns r simple
i quote from hmrc site......
"File your monthly return
You can use HM Revenue & Customs free CIS Online Software to file your CIS300 Monthly Returns.

If you have made no payments in this period to subcontractors for this scheme then File a Nil Return."
and there is a button to push.

it's eeeeasy (unlike compliance with CIS)

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By stephenkendrew
15th Oct 2007 14:09

Problems Indeed!
I'm sure the new penalty regime is going to produce all sorts of problems for contractors. I'm also sure that these problems will be caused just as much by HMRC as contractors.

I must have something like 20 clients who are contractors (or HMRC thinks are contractors) and, over the last 6 months, I reckon that every one of them has had some difficulty with the tax office which has always caused by HMRC.

For example: -

 We hand-delivered six monthly returns on 16 May 2007 to our local tax office. All six clients subsequently got a letter saying the return was late.

 One client submitted his own return, on-line before the due date. Again a warning letter was issued saying the return was late and will incur penalties later this year - a telephone call to HMRC revealed that the return had been processed on 18th.

 Any new company we set up that has a word connected to the construction industry (maintenance, builders, contracts and tiling for example) seems to result in HMRC automatically assuming they are a contractor. They set up a CIS scheme (without us asking them to) with a result that they then require monthly returns.

 One company has been incorrectly set up with two different PAYE/CIS schemes (there is only one director/employee). After 18 months we are still having great difficulty getting them to stop issuing paperwork for one of them.

 I have made several calls to the CIS helpline with a view to registering a client as a subcontractor and have received a variety of responses. They don't seem to know whether I, as their accountant, am able to register a company as a subcontractor - some have let me without any problem, some have let me after initially telling me I can't and some insist that I can't whether there's a 64-8 or not.

 We completed the ‘will not be using a subcontractor in the next six months’ box for one contractor and I received a phone call from HMRC saying they will not be issuing any more returns until February 2008. Six weeks later HMRC sent a letter saying the latest monthly return has not been received etc etc.

.....and that's without mentioning incorrectly issued PAYE penalty notices for returns which were submitted on line by the due date, companies that no longer exist, businesses that didn't exist in the year in question, HMRC already know have ceased trading.

Yet more time that I will be unable to charge to clients I fear!!

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By baseline
15th Oct 2007 16:02

Nil Returns
Interestingly, and I'm not sure about this. You can file a nil PAYE return online but not a CIS one. Should HMRC have waited till this was in place?

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By daveforbes
17th Oct 2007 07:32

nil return penalty
At £100 per month it seems like the best value for money penalty but it soons racks up. Miss a whole year's worth of nil returns and it will cost you £6600 and then £1200 per month that you continue to dally.

You can have a holiday from the requirement to file further nil returns by ticking the "i don't expect to pay any subbies for the next 6 months box" on any return. I am not sure what would happen if you sent in your month 1 return in 6 months late with this one ticked. Would you still be penalised for M2 - M6 being missing ?

David Forbes

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By daveforbes
15th Oct 2007 17:26

you can file nil returns using 3rd party software
You can file nil returns electronically using software.

David Forbes

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By abelljms
16th Oct 2007 09:37

new CIS is sissy, or *issy
The new CIS is in essence one-sided against small contractors, and in favour of large contractors who have sophisticated accounts functions.

I look after three contractors, and they have yet to achieve the ludicrous deadline of within 14 days of 5th for doing their returns, and yet none of them have been recorded as late with their returns – it’s maaaagic!

I deeply resent being forced into this position by the pathetic rules of HMRC – this is supposed to be part of easing regulations on small businesses – I don’t fink so guv

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By Robert Hurn
16th Oct 2007 15:48

Does a late Nil return attract a penalty?
Generally penalties are limited to 100% of tax due, des this apply to a CIS nil return filed late or will the minimum £100 penalty apply?

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