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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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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 - over 12 months of lateness

 
 
 
 
 
 
 
 

You do not use the PDAC when calculating these penalties.

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 98(A)(2)(b)(ii) TMA 1970 provides a further penalty, not exceeding £3,000 where the failure to submit a return continues beyond 12 months. This penalty is in addition to the fixed penalty due under Section 98A(2)(a) explained in COG914290.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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.

Penalty Amount

The new CIS monthly filing and penalty regime was introduced in April 2007. The penalty for returns over 12 months late is calculated on an increasing tariff basis according to the number of offences within the previous 12 month period. To ensure consistency, the tariff was used for automated penalties and penalties charged as part of a compliance check.

The tariff amounts were as follows

1st Offence £300
   
2nd Offence £600
3rd Offence £900
4th Offence £1,200
5th Offence £1,500
6th Offence £3,000

Any subsequent offences within the 12 month period (Word 43KB) attracted a penalty of £3,000 per offence.

Compliance officers were advised penalties must be pursued and should be calculated in accordance with the above tariff.

However we have said publically we will exercise our discretion under Section 102 TMA 1970 to mitigate the total Section 98A(2) penalties to match the amount that would have been payable under Schedule 55 Finance Act 2009 where this is less.

The reasons for routinely using the tariff to calculate the penalty under Section 98A(2)(b)(ii) in all cases are now no longer relevant or appropriate. The following sets out the revised process from September 2013.

Updated Process

Section 98(A)(2)(b)(ii) TMA 1970 provides for a further penalty, not exceeding £3,000. HMRC have discretion when calculating the appropriate penalty, so long as it does not exceed the statutory maximum of £3000.

Where the total penalties calculated to match the amount which would have been payable under Schedule 55 for an individual monthly return are greater than the total Section 98A(2) penalties, you should continue to calculate the Section 98A(2)(b)(ii) penalty using the normal tariff.

However, where the total Schedule 55 amount is less than the total Section 98A(2) penalties (total fixed and further 2(b)(ii) penalty calculated using the normal tariff) for a monthly return, whether we charge a further penalty under Section 98A(2)(b)(ii) will depend on whether the total fixed penalties due under Section 98A(2)(a) for an individual return are greater or less than the total amount which would have been payable under Schedule 55.

Total Section 98A fixed penalties are greater than the total Schedule 55 amount

Where the total fixed penalties due under Section 98A(2)(a) for an individual return are greater than the total amount which would have been payable under Schedule 55 do not charge a further penalty under Section 98A(2)(b)(ii) for this monthly return.

Furthermore, because the total fixed penalties exceed the total Schedule 55 amount you will be able to mitigate the fixed penalties to the lower Schedule 55 amount under Section 102 TMA 1970 in accordance with the CIS mitigation process COG914296.

Total Section 98A fixed penalties are less than the total Schedule 55 amount

Where the total fixed penalties due under Section 98A(2)(a) for an individual return are less than the amount which would have been payable under Schedule 55, you should calculate the Section 98A(2)(b)(ii) penalty so the total Section 98A(2) penalties (fixed plus the (2)(b)(ii) penalty) for each return are no more than the total Schedule 55 amount.

However, as an added safeguard the penalty must not exceed the amount that would have been charged using the normal tariff, even if this results in an overall penalty below the total Schedule 55 amount.

For example

  • the returns for months ended 5 May 2010 and 5 June 2010 are the first two monthly return over 12 months late
  • the total Schedule 55 penalties for each return are £2000
  • the total Section 98A(2)(a) fixed penalties for each month are £1200
  • the Section 98A(2)(b)(ii) penalty required to make the total Section 98A(2) penalties for each month equal the Schedule 55 amount is £800
  • however the penalty calculated under the normal tariff is £300 and £600 respectively. The Section 98A(2)(b)(ii) penalty is therefore restricted to the original tariff amount even though this will result in an overall penalty below the Schedule 55 amount (£1500 and £1800 instead of £2000 for each return).

In these circumstances the penalty is calculated in accordance with the statutory provisions in Section 98A(2)(a) and (b)(ii). We do not need to use our discretionary powers in Section 102 TMA 1970 to mitigate these amounts because the statutory penalties do not exceed the amount calculated under Schedule 55.

See COG914296 if the contractor seeks mitigation on further grounds.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Note: You must consider the penalties payable for each individual return separately. There may be cases where the circumstances described above apply to different returns. In these cases you must apply the appropriate rule for each monthly return.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Which penalties will the updated process apply to?

The revised policy can be applied where we have already charged penalties or when we are considering Section 98A(2) penalties in new compliance cases.

  • where existing penalties are under appeal the new policy can be applied to settle the appeal against Section 98A(2)(b)(ii) penalties, and
  • where you have not yet issued penalties the policy will determine the amount you should charge (whether you are recovering by contract settlement or issuing formal determinations).

Where a penalty determination for Section 98A(2)(b)(ii) penalties based on the escalating tariff has been appealed

  • you should recalculate the penalties using the updated rules
  • if the penalty for any return would be less than the tariff amount you can agree to reduce the Section 98A(2)(b)(ii) penalty as part of the appeal process
  • you should write to the contractor and offer to reduce the Section 98A(2)(b)(ii) to the lower amount and ask for agreement
  • if agreed, you should reduce the penalty and settle the appeal against the Section 98A(2)(b)(ii) penalty or penalties
  • if not agreed, you will not be able to reduce the Section 98A(2)(b)(ii) penalty until the appeal process has been exhausted
  • if the contractor notifies the appeal to a tribunal we will advise the tribunal we had offered to reduce the Section 98A(2)(b)(ii) penalties and will ask them to determine the penalties in the lower amount
  • if the contractor has also appealed against the Section 98A(2)(a) fixed penalties, where you are able to mitigate any of them under the CIS mitigation process you should let the contractor know and follow the guidance in COG914296.

Reasonable Excuse

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 more 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.

Charging Penalties

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.

You must

  • check CISR to make sure automated penalties have not already been issued, and
  • read COG914296 which explains the circumstances when you may be able to mitigate section 98A(2) CIS late filing penalties under section 102 TMA 1970.
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Return submitted during your check

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Because the CIS300 return is a monthly return it is important that you

  • discuss the 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 1 April 2009 COG914300, and
  • Schedule 24 penalties for returns due from 1 April 2009 - CH81000 onwards.