Supporting Guidance: employer compliance: guidance by subject: penalties: CIS from 06-04-07 to 05-10-11 - failure to submit a monthly return - Section 98A penalties - first 12 months of lateness
From 6 April 2007 contractors have been required to submit a monthly return (CIS300) to HMRC of all payments made to subcontractors in the tax month and any deductions they have made from those payments COG910150.
Section 98A(2)(a) TMA 1970 provides for a penalty where a contractor fails to submit a monthly return by the due date. This applies even if the return is a nil return.
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Each late monthly return is a separate filing penalty offence. Therefore when considering penalties you must calculate the penalties payable for each individual return separately.
The penalty is fixed in legislation at £100 per month or part month for each batch or part batch of 50 subcontractors. For example:
- A return of 53 subcontractors which is late by 4 months 15 days.
- The penalty is £1,000, that is:
- 1 batch of 50 subcontractors is £100.
- 1 part batch for 3 subcontractors is £100
- Total monthly penalty is £200
- £200 x 5 (4 months + 1 part month) = £1,000.
This penalty differs from the penalty sought on a P35 or CIS36 return that is late because it is not capped to the amount due on the return. So in the above example even if the amount due on the return was £600 the penalty would remain at £1,000.
The penalties are fixed in legislation and should be pursued in all relevant cases.
Returns over 12 months late
If the failure continues beyond 12 months then a further penalty under Section 98A(2)(b) is also payable - see COG914295.
Section 102 Mitigation
You must read COG914296 which explains the circumstances when you may be able to mitigate the total Section 98A(2) CIS late filing penalties for each return under Section 102 TMA 1970.
If the contractor claims to have a reasonable excuse for the failure to submit a return on time - see COG914065, CISR81000 and EM5152.
There is also detailed guidance on reasonable excuse in CH61500. Although this relates to the new late filing penalty regime under Schedule 55 FA 2009, it provides some useful examples of what is and what is not a reasonable excuse.
Where the penalty is to be sought as part of the compliance check the Section 98A(2) penalties can either be included in a contract settlement or determined formally issuing a manual penalty assessment notice - see COG914297.
- check CISR to make sure automated penalties have not already been issued
- read the guidance and examples in COG914295 which explains how to calculate the appropriate penalty for returns over 12 months late
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- consider the guidance in COG914296 to see whether you can mitigate the penalties under Section 102 TMA 1970.
Returns submitted during your check
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Because the CIS300 return is a monthly return it is important that you
- discuss failure to submit returns with the contractor as soon as the problem is identified.
This will encourage the contractor to submit subsequent returns on time and avoid further penalties.
Interaction with other penalties
Where a late return is found to be incorrect or inaccurate you should also consider
- Section 98A(4) penalties for returns due prior to 1st April 2009 - COG914300, and
- Schedule 24 penalties for returns due from 1st April 2009 - CH81000 onwards.