Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Construction Industry Scheme Reform Manual

From
HM Revenue & Customs
Updated
, see all updates

Late Return Automatic Penalties: Issue of Penalty Notices

CISR65600 Action Guide contents
   

Issue of late return penalty or amended penalty notices

A penalty notice (or amended penalty notice, following discharge or amendment of a penalty charge) must be issued to the scheme’s business address, with a copy to the agent if the agent has been authorised to receive scheme output by the contractor.

If the scheme address is RLS, the system will withhold the issue of the penalty notice until a current address is available. In these circumstances the agent’s copy of the penalty notice will also be withheld until a valid address for the scheme is available.

A penalty notice cannot be issued where the contractor scheme does not hold a Self-Assessment (SA) or COTAX unique taxpayer reference (UTR). These penalties will not be created until the next penalty run immediately after the SA or COTAX UTR has been entered on to EBS.

If a valid scheme business address exists and the agent’s address is RLS, the penalty notice will still be sent to the scheme, however, the agent’s penalty notice will not be prepared for issue. Even if a valid address is subsequently received for the agent address the system will not then issue a copy of the penalty notice to the agent.

An amended penalty notice will be sent to whichever address is available at that point in time. The system will not consider who did or did not receive the original penalty notices.

Monthly penalty run

The CIS penalties will be issued once a month immediately following the penalty run which will identify all of the returns which will attract at least one (or more) of the following for each outstanding or late received CIS monthly return.

* First fixed penalty FP1
   
* Second fixed penalty FP2
* First tax geared penalty TGP1
* Second tax geared penalty TGP2
  • The penalty run is usually carried out at or around the 29th of each month to identify all late or outstanding CIS monthly returns at the 19th of that month.
  • Where a tax geared penalty is to be issued and the amount of the penalty falls below £1 the penalty will not be issued to the contractor and it will be held on the system as ‘Withheld’.

Example 1

A penalty run takes place on 29/12/2012 and identifies the following for a contractor who is not new and to whom capping (see CISR65080) does not apply:

Return period ended Due date Return Received Type of Penalty
       
05/12/2012 19/12/2012 24/12/2012 First fixed penalty
05/10/2012 19/10/2012 24/12/2012 Second fixed Penalty
05/06/2012 19/06/2012 24/12/2012 First tax geared penalty
05/12/2011 19/12/2011 24/12/2012 Second tax geared penalty

Where a first or second tax geared penalty is being issued for a CIS monthly return which has not yet been received by HMRC and the contractor is not new and to whom capping does not apply, the CIS system will issue a standard tax geared penalty of £300. This penalty will be increased (if required) to 5% of the amount of CIS deductions on the monthly return once the relevant return has been captured.

Example 2

A penalty run takes place on 29/12/2012 and identifies the following for a contractor who is new and to whom capping (see CISR65080) will apply:

Return period ended Due date Return Received Type of Penalty
       
05/12/2012 19/12/2012 24/12/2012 First fixed penalty
05/10/2012 19/10/2012 24/12/2012 Second fixed penalty
05/06/2012 19/06/2012 Not received First tax geared penalty due but not issued (see below)
05/12/2011 19/12/2011 Not received Second tax geared penalty due but not issued (see below)

Where a first or second tax geared penalty is due to be issued for a CIS monthly return which has not yet been received by HMRC, and the contractor is new and to whom capping will apply, the CIS system will not issue either a first or second tax geared penalty until such time as the return required has been logged and captured.

Once the return is captured the CIS system will calculate the tax geared penalty of 5% of the CIS deductions on the return and automatically issue this to the contractor. If the CIS deductions on the monthly return are less than £6000 then the amount of the CIS penalty issued will be less than £300 as this is a new contractor as set out in FA09/Sch55 Para 13(2)(a).

Circumstances when CIS penalties will not be issued

Penalty notices will not be issued and will have a status of ‘Withheld’ where any of the following circumstances are present;

  • The ‘Inhibit output’ signal is set for the contractor
  • A penalty inhibition has been set against the penalty date(s) for the return(s).
  • The business address is RLS. When a useable address becomes available any CIS penalties that would otherwise have been issued will now be issued.
  • The EBS record for the contractor does not hold a Self-Assessment (SA) or COTAX UTR for the contractor.
  • The contractor is deceased or insolvent.
  • The capping limit of £3000 for CIS fixed penalties has already been or is reached for a period where capping applies up to the capping end date (see CISR65080 below).
  • The contractor is new and to whom capping will apply, and a first or second tax geared penalty is due, but the contractor has not yet submitted the monthly return required.
  • A tax geared CIS penalty has a value of below £1.

RLS Signal or Penalty Inhibition lifted, or missing UTR entered on to EBS

Where an RLS signal or penalty inhibition is lifted, or a missing UTR is entered on to EBS the CIS system will, at the next penalty run, issue any CIS penalties that were on a ‘Withheld’ status because of the RLS signal or penalty inhibition, or where the UTR was missing from EBS. The exception to this is that where any of these actions occur after 28th October 2011, CIS will not issue any TMA70/S98A CIS penalties for return periods ended 5th October 2011 or earlier.

Re-calculation of tax geared penalties where CIS deductions shown on the CIS monthly return is amended

Where subsequently the amount of CIS deductions on the CIS monthly return is amended following issue of either the first and / or second tax geared penalty, CIS will automatically re-calculate the amount of the tax geared penalty, and where this is greater than the tax geared penalty already issued the system will issue an additional penalty where this has a value of £1 or more.

If the amount of the tax geared penalty should be reduced following the amendment made to the return, CIS will take no action to reduce the amount of the tax geared penalty, and it will be up to the contractor to appeal against the amount of the tax geared penalty already issued.

Issuing historical returns and the creation of penalties at registration

In normal circumstances the first automatic penalty that would ever be levied on a contractor scheme for failing to file a return by the due date would relate to the return period in which the ‘scheme start’ date was notified to EBS. However, when the scheme start date falls within a monthly period earlier than that in which the notification was made and this date is entered onto EBS it will prompt the CIS system to automatically issue the appropriate number of historical returns (up to a maximum of six months) due from the start date. The relevant number of penalties arising in respect of these outstanding returns will also then be created by the system and issued to the contractor.

The system is able to issue up to a maximum of six historic returns. The total number of penalties due in these cases though will not be restricted, although see the following paragraphs;

Up to 28th October 2011

Where a new contractor scheme (‘PSC’ or ‘XP’) is opened on EBS, or a scheme type is changed from ‘P’ (employees only) to either ‘PSC’ or ‘XP’ prior to 28th October 2011 with an ‘historical’ commencement date, the CIS system will automatically generate CIS penalties issued under TMA70/S98A going back to the original commencement date of the contractor scheme.

From 29th October 2011

Where a new contractor scheme (‘PSC’ or ‘XP’) is opened on EBS, or a scheme type is changed from ‘P’ (employees only) to either ‘PSC’ or ‘XP’ after 28th October 2011 with an ‘historical’ commencement date, the CIS system will automatically generate CIS penalties issued under FA09/SCH55 going back to the original commencement date of the contractor scheme (where that is after 29th October 2011).

Where the contractor scheme start date is before 29th October 2011, but the contractor scheme was not opened until 29th October 2011 or later, then CIS penalties under FA09/SCH55 will only be automatically generated back to the return period ended 5th November 2011. No CIS penalties for earlier periods to this will automatically be issued, although you have the option to raise manual penalty determinations for the CIS penalties due under TMA70/S98A if you wish for return periods with a filing date of 19th October 2011 and earlier months.