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HMRC internal manual

Compliance Handbook

Penalties for Failure to Pay on Time: Rules for specific taxes: Construction Industry Scheme (CIS): Penalties: failure to pay all or part of amounts due - overview

The total penalties for a tax year consist of

  • a default penalty for deductions on account of tax unpaid at the penalty date, see CH153250, and
  • two further penalties for deductions on account of tax unpaid at 6 and 12 months after the penalty date, see CH153300.

So a continuing failure to pay can incur all of these penalties on the same unpaid deductions on account of tax.

It is important to distinguish between

  • the due date - the date when the person needs to pay the tax, see CH153100, and
  • the penalty date - the day after the due date and the first date on which a penalty is chargeable for a tax period.

To calculate the default and further penalties due for a tax year you will need to know the following.

  1. The number of failures in the tax year. A failure is a failure to pay the ‘full amount’ of the deductions on account of tax by the due date.
* The first failure in a tax year does not attract a default penalty.
* All failures, whether or not they attract a default penalty, where payment continues not to be made past certain dates attract one or two further penalties.
  1. The number of defaults in the year. A default is any failure to pay the full amount of deductions on account of tax by the due date, except the first such failure in the year.
  2. The amounts unpaid on each of the due dates, even if they have subsequently been paid.
  3. The penalty rate to use for the amount unpaid for each default.
  4. The amounts of any payments still due for each tax period 6 months and 12 months after the penalty date.

A payment is treated as the ‘full amount’ if the difference between the tax due and the amount paid is £100 or less.

The operational guidance will tell you more about how to obtain this information. You can then calculate any penalties.

Note that late payment penalties for failing to make CIS payments by the due date are calculated using the same method as the late payment penalties for monthly and quarterly PAYE/NIC payments, see CH152450.

Also note that PAYE/NIC and CIS are treated as the same tax when calculating the default penalties for failing to pay on time. This means that where a person is liable to make CIS payments and also PAYE/NIC payments, then a failure to pay one or more elements of the combined amount by the due date counts as one failure. The late payment default penalty is calculated on the combined amount of the PAYE/NIC and CIS defaults. See CH153400 for an example.