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HMRC internal manual

Construction Industry Scheme Reform Manual

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HM Revenue & Customs
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Late Return Automatic Penalties: Penalty Inhibitions

CISR65600 Action guide contents
   

Whilst this function can be accessed by any officer with the appropriate role it is not intended for it to be widely used. Officers should first consider whether any other action is more suitable before setting an inhibition. It may be that a nil return from the contractor or the setting of the Inactivity signal is more appropriate. Central Management Information System (MIS) will maintain records of the usage of this function.

If a contractor or their agent contacts HMRC before the filing date to advise that they will have difficulty, or will not be able to submit a monthly return or returns by the due date, the CIS system is able to inhibit the issue of the late filing penalty in respect of those returns. You should be satisfied however before agreeing the request and setting an inhibition that the excuses provided ‘fall within’ the acceptable reasons for setting the signal (see below).

The setting of a penalty inhibition will prevent the issue of a new automatic filing penalty for the period inhibited. This will also include those penalties that have not yet been issued due to an RLS address, see CISR65060. The penalty will still be created by the CIS system but will remain in this ‘withheld’ state as long as the penalty inhibition exists. A penalty inhibition can therefore only be set in respect of a penalty that has not yet been issued.

The penalty inhibition is set against an individual return and a penalty date relating to that return. For example, the return for period ending 5May 2012 could have an inhibition set against penalty dates of 20 May, 20 July, 20 November 2012 and 20 May 2013. It is possible to set inhibitions against more than one return and more than one penalty date at one time.

The number of future returns for which a future penalty inhibition can be set is restricted to the current return and six future returns. CY+1 year returns will only become visible on the CIS system six months into the current year. If you try to select a return further than six months into the future a warning message will be displayed. Where a future return within the next six months is selected inhibitions can be set for all four penalty dates for that return (prior to 29th October 2011 there would have been thirteen penalty dates under TMA70/S98A).

Request for penalty inhibition made in writing

Where you believe that a penalty inhibition is inappropriate in the circumstances and that the more appropriate action is for Inactivity to be set, or even for the contractor to submit a nil return, you should telephone the contractor to discuss other options available before taking any action. The request for a penalty inhibition could also be contained within a written penalty appeal or complaint.

Request for penalty inhibition made by telephone

During a telephone contact it may become apparent that the return cannot be sent at the appropriate time but the circumstances are such that the scheme should be submitting a nil return or an Inactivity status should be set. This contact will allow you the opportunity to discuss further with the caller before deciding on the appropriate action.

Request made to Contact Centre Advisor

If the contact is made to a Contact Centre the advisor should inform the caller that the return is due on the 19t h of the month and consider whether the caller can be assisted in any other way other than setting an inhibition, maybe by the submission of a nil return or considering whether an Inactivity status is appropriate. However, if the caller is insistent that they have a good reason for being unable to submit the return on time (or a nil return is not appropriate as payments to subcontractors are expected to be made), full details of the conversation should be taken and passed over to the CIS Centre, Newry through a WAM, for immediate consideration to be given to their request.

Setting a penalty inhibition

If it is thought fitting to set a penalty inhibition, you should follow the steps within the Action Guide at CISR65660 relating to setting (or lifting) of a penalty inhibition signal. You should note that the submission of an appeal against a late return penalty is not a sufficient reason in itself for setting an inhibition. You should examine each case and consider its merits whether it is deemed appropriate, or not, that penalty inhibitions should be set depending upon the reasons given within the appeal.

Between the 10th to 28th October 2011 (dates inclusive) there will be two separate functions for setting a penalty inhibition, these functions are;

  • ‘Maintain s98A Penalty inhibition’
  • ‘Maintain Penalty inhibition’

The function ‘Maintain s98A Penalty inhibition’ will remain visible on the CIS Main menu until 2nd December 2011, however there will be no need to set a penalty inhibition against a TMA70/s98A penalty in respect of any return month after 28th October 2011 as no further CIS penalties under this legislation will be issued automatically.

Maintain s98A Penalty inhibition

This function will take you to the s98A CIS penalties and allow you to set penalty inhibitions against all thirteen penalty instances for return periods up to and including 5th October 2011, in order to prevent TMA70/S98A CIS penalties being issued up to 29th October 2011.

Maintain Penalty inhibition

This function will take you to the SCH55 CIS penalties and allow you to set penalty inhibitions for all four penalty instances for return periods from 5th November 2011.

From 29th October 2011 this will be the only function available and you will not be able to set any new penalty inhibitions for TMA70/S98A CIS penalties. However as no further TMA70/S98A CIS penalties will be issued from 29th October 2011, there will no need to set a penalty inhibition for these CIS penalties after this date.

Any penalty inhibitions set before 10th October 2011 for months ended 5th November 2011 or later will not be carried across to the new CIS penalty regime under FA09/SCH55. Therefore you should make a separate note of these cases, and go back into CIS after 10th October 2011 to re-set the penalty inhibitions for the months required.

Reasons for setting a penalty inhibition

An inhibition can be set for any of the following reasons;

  • Customer complaint
  • Mediated complaint
  • Reasonable excuse - illness
  • Reasonable excuse - bereavement
  • Reasonable excuse - IT failure
  • Reasonable excuse - operational
  • Reasonable excuse - other
  • Appeal Determined - return not required
  • HMRC administrative error
  • Compliance intervention
  • Insolvency
  • Other

Before making a selection from any of those listed within the ‘reasonable excuse’ categories above you may wish to refer to CISR81020 which gives an overview of what may or may not be accepted as a reasonable excuse. You should remember that each case must be considered on its own merits, and that a reasonable excuse can only exist where an unusual event that is either unforeseeable or beyond the person’s control prevented the completion and submission of the return by the due date.

In cases where a reasonable excuse has been accepted as the reason for inhibition you must inform the customer in writing of the reason you have inhibited the penalty and the date by which the monthly return should subsequently be submitted to HMRC. This date will clearly depend upon the reason for the inhibition, but should be as soon as possible after the reason for which the inhibition was granted expired.

If the expected return is still not received by the date expected the officer should examine the case and consider removing any inhibitions previously set for that return. If you decide to remove the inhibition you should follow this up with a letter to the customer referring them to the earlier correspondence and informing them that as the return remains outstanding any penalties arising in respect of that return will now be released.

If you choose to remove a penalty inhibition it can be cancelled completely with the effect that all inhibited penalties will then be issued. However, you can choose which inhibitions to cancel when there is more than one inhibition set against different penalty dates for a return.

Reasons the inhibition signal cannot be set;

  • The contractor scheme was not registered for at least one day of the return period
  • The scheme’s ‘effective’ date is after the last day of the return period. (‘Effective’ meaning that at least one subcontractor was paid or verified (or both) during the period for which the return is needed).
  • The return period is prior to CY-6
  • The return period selected is more than 6 returns in the future
  • The penalty relevant to the inhibition has already been issued
  • The penalty is a TMA70/S98A type CIS penalty and the date is 29th October 2011 or later.

Reviewed Declaration Flag

This declaration is designed to act as an indicator that the penalty is unlikely ever to be taken, and can be set within the ‘Maintain Penalty Inhibition’ function. This could be because the date of registration was captured incorrectly or the penalty due has been taken manually by a Compliance team as part of a contract settlement. The inhibition signal would first be set against the selected penalty and if it was deemed appropriate then the reviewed declaration flag could also be set. Where an inhibition signal has this reviewed declaration flag set, if in the future the penalty is to be issued it will be necessary to remove the flag first before the inhibition signal can be lifted.