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HMRC internal manual

# 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 - default penalty

The first part of the penalty charge for the year is the default penalty. A person incurs a default penalty where they do not pay the deductions on account of tax by the due date. The penalty is incurred on the penalty date.

The default penalty applies to any failures that are also defaults.

The first failure in a tax year is deemed not to be a default so it does not attract the default penalty.

## Calculate the default penalty

To calculate the default penalty for tax unpaid at the due date, follow these steps.

1. Take the number of failures and deduct the first one to give the number of defaults in the year.
2. Use the table below to find the penalty rate for the default, which depends on the number of defaults in that year.
3. Apply the percentage from the table to the amount of tax in the default.

Be careful to apply the percentage only to the total amount of tax in the default. This means separate defaults in a tax year will have penalties charged at different rates, not all charged at the highest rate.

A failure is still counted as a default when establishing a subsequent penalty rate even if the amount had been paid when the subsequent default occurred.

See more examples at CH153400.

## Table of default penalty rates

Number of failures in relation to the tax year Number of defaults in relation to the tax year Default penalty rate for the amount of tax in the default that is unpaid at the penalty date
1 Zero n/a
2 1 1%
3 2 1%
4 3 1%
5 4 2%
6 5 2%
7 6 2%
8 7 3%
9 8 3%
10 9 3%
11 10 4%
12 11 4%

Notes

The first failure is not a default, so does not attract a default penalty. For example, if there are 8 failures and therefore 7 defaults, the default penalty is 3% of the tax unpaid at the due date resulting from the 7t h default.

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.

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.

FA09/SCH56/PARA6