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Newsletter - Autumn 2011

All change on the CIS express

Penalties for late construction industry scheme (CIS) contractor monthly returns will be changing from October 2011.

The good news is that, in many cases, the new penalties may be lower than the previous position. In particular, for new CIS contractors there will be an upper limit to some of the penalties charged. This upper limit will apply when new contractors first send a monthly return if that return, and any other monthly returns that are sent at the same time, are late.

Although the new penalties do not 'officially' start until October 2011, HMRC has published guidance explaining how the rules may apply early at the taxpayer’s request (www.hmrc.gov.uk/cis/penalties-late-returns.htm). Any contractor who has been or is charged penalties for filing a monthly return late before October 2011 may ask HMRC to:

work out how much the penalties would be under the new rules; and
if this is less than the amount already charged, agree that the penalties should be reduced to the lesser amount.

Rules up to October 2011

A late submission of a contractor monthly return currently incurs a penalty of £100 for each of up to 12 consecutive months that the return is not submitted by its due date. The due date is the 19th of the month, so for example, the monthly return from 6 July to 5 August is due on 19 August.

After 12 monthly penalties have been charged, if the return is still outstanding, a final penalty in the range of £300 to £3,000 is charged depending on how many other final penalties have been charged over the previous 12 month period.

When the returns are eventually submitted, the initial penalties of £100 are increased where the returns show entries for more than 50 subcontractors.

New rules from October 2011

The new penalty system starts in October 2011. The first return to attract a penalty is the return due for the month starting 6 October and ending 5 November 2011.

Penalties will be charged as follows:

Initial failure to meet the due date of the 19th of the month – a penalty of £100.
Return still outstanding two months after the due date – a further penalty of £200.
Return still outstanding six months after due date – a ‘tax geared’ penalty becomes due. This penalty is the greater of 5% of any deductions shown on the outstanding return and £300.
Return still outstanding 12 months after the due date – a second ‘tax geared’ penalty becomes due.

Contractors new to CIS

Under the new rules, if a contractor has not sent any previous returns and is filing the first returns late, there will be an upper limit of £3,000 on the total fixed penalties (£100 and £200) that may accrue.

This upper limit does not apply to any ‘tax geared’ penalty except that, where it applies, it removes the £300 minimum penalty that would otherwise be charged where the tax geared penalty is less than £300.

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