Late Return Automatic Penalties: Vacating a Penalty
|CISR65600||Action Guide contents|
Where it becomes clear that a late filing penalty has been wrongly issued to a scheme, the function [Vacate Penalty] should be used to correct the matter. You will need to hold the CISR Penalty Administrator role to access this function.
From 29th October 2011 the CIS system will allow you to vacate penalties issued as follows;
- CIS penalties issued under TMA70/S98A for months to 05/10/2011
- CIS penalties issued under FA09/SCH55 for months from 06/10/2011
It would be usual to use this function where there has been a failure of the system or a clerical error to process information within the time frame allowed, or the information received has been incorrectly processed. Examples of this could be;
- an incorrect start date for the scheme was entered onto the system which generated the issue of a monthly return that was not in fact due
- a period of Inactivity was requested by the contractor but was not processed in time to prevent the return to which the period of Inactivity applies from being issued
- the return was received at an HMRC office by the due filing date but remained ‘unlogged’ and outstanding on the system at the penalty run date
- the scheme was not required to complete a CIS monthly return for the period concerned.
In the last example, if a contractor registers for CIS in mid-September, as he has engaged subcontractors a monthly return will be due for the period to 5th October. If the contractor later advises HMRC that the first payment made to a subcontractor was not made until mid-October, then the return to 5th October will not be required. If you come across this situation you should advise the contractor to telephone the Contact Centre to submit a nil return for the month to 5th October, although there is no legal obligation for the contractor to do so. If the contractor fails to file a return for the period to 5th October then a return exemption should be set instead (see CISR69050) as well as any CIS penalties being vacated for this period.
In all of the above circumstances an appeal from the contractor should not be sought before vacating the penalty. The use of this function bypasses the appeals process and reduces the penalty charge to nil, with a notice being issued by SAFE to the customer to confirm this. If the penalty has been paid either partly or in full by the contractor and it is vacated, SAFE will either allocate the amount paid to another outstanding contractor’s monthly penalty or other charge, or where there are no amounts outstanding the amount paid will be repaid by SAFE automatically to the contractor.
Penalties that have been ‘Created’ by the system, (but not actually ‘Issued’) can also be vacated. These include penalties that have been withheld from issue due to the address being RLS, as well as penalties that have an inhibition signal set against them.
When vacating the penalty you will need to decide whether any inhibitions need to be set against future filing return periods for this return to prevent the issue of further filing penalties that will be imposed if the return remains outstanding or is not due. The setting of the ‘Reviewed Declaration Flag’ should also be considered where it is clear that the penalty is unlikely ever to be taken, for further information on when to set Penalty Inhibitions and the Reviewed Declaration Flag see CISR65090.
Where a late filing penalty is under appeal it cannot be vacated. If the CISR Penalty Administrator logs an appeal and it is later found when being worked that the penalty should never have been issued it cannot now be vacated. The appeal should be upheld in favour of the appellant and the penalty determined immediately which will prompt the issue of an amended penalty notice (in the figure of nil) by SAFE.
Where the contractor or their representative contacts the Contact Centre to advise that the penalty is not due the advisor will inform them to appeal on line. It will then be for NIC & EO to decide if they wish to treat it as a formal appeal or whether they can vacate the penalty where it is evident that the penalty should never have been issued.
If the penalty being vacated was issued under FA09/SCH55 and falls within a capping period, the system will automatically issue one or more CIS penalties to bring the level of CIS fixed penalties back up to the £3000 cap but only where all of the following apply;
* the penalty being vacated is either a first or second fixed penalty type * the cap of £3000 for fixed penalties was reached previously * there are ‘withheld’ CIS fixed penalties because of the £3000 cap * the address for the contractor is not RLS * the contractor is not deceased or insolvent