What are the CIS penalties for filing returns late?

Monthly returns are due to be filed by the 19^th of every month.

Should this deadline be missed the contractor will face a late filing penalty of £100.

After 2 months a further filing penalty of £200 is added.

This penalty is added to the £100 penalty already issued above.

A further penalty of £300 or 5% of the CIS deductions (whichever is higher) is issued for filing 6 months late.

This penalty is in addition to the penalties issued above.

After 12 months a further penalty of £300 or 5% of the CIS deductions (whichever is higher) is issued.

A potentially higher penalty of 100% of the CIS deductions or a penalty of £1,500 or a penalty of £3,000 may be issued.

Higher penalties are issued if HMRC find out that the return was deliberately filed late or information has been deliberately withheld.

As an example if a contractor doesn’t file their 5^th January and 5^th February monthly returns until 10^th May the total penalties would be £600. This is calculated as follows:

5^th January return was due to be filed by 19^th January, so it has been filed over 3 months late. It therefore incurs the £100 penalty for being over 1 day late plus the £200 penalty for being over 2 months late. Total CIS penalties for this month is £300.

5^th February return was due to be filed by 19^th February, so it has been filed over 2 months late. Again this incurs the £100 penalty for being 1 day late plus the £200 penalty for being over 2 months late. The total CIS penalties for this month is also £300.

Penalties will not be charged if there was a reasonable excuse for filing late. Typically this is where something outside of the contractors control prevented them from filing the monthly return.

As soon as the issue has been resolved, there should be no unreasonable delay in filing. As a result, we would expect reasonable excuse claims to be more successful for filing a few days late. It is very unlikely to be successful for longer delays but each appeal is different.

Should a contractor fail to submit a nil monthly return a CIS penalty will automatically be issued.

When this happens HMRC have confirmed that they will cancel the CIS penalties when the contractor confirms that the monthly return was Nil.

N.b A £nil monthly return is simply a tax month in which the contractor has paid no subcontractors.

Contractors must confirm that they have checked the employment status of their subcontractors. This is done when filing the CIS monthly returns.

Employment status is a big issue for HMRC. Contractors have been known to take on workers and treat them as subcontractors for tax purposes. This is to avoid employment taxes which would be paid if taxed as employees.

Declaring the wrong employment status can incur penalties of up to £3,000.

Ensure that you check the status of your workers by comparing the differences between an employee and a subcontractor.

Contractors must keep records showing amounts paid to subcontractors and also any CIS tax deducted.

HMRC may at some point request to see the CIS records. Failure to keep these records could incur a penalty of up to £3,000.

Most businesses are both contractors and subcontractors. Should the business as a contractor file late monthly returns it will have financial penalties to pay.

However, the much greater punishment as a subcontractor would be the removable of the gross payment status.

Losing gross payment status would mean the business no longer receives the full sales amount from its customers. Instead as a net subcontractor they would have 20% tax deductions.

Potentially this could have a massive impact on cashflow as less money would be received from customers.

For further information on penalties issued by HMRC see the CIS guidance provided by HMRC or the HMRC guidance on compliance checks.