CIS: penalties: introduction
Schedule 55 CIS penalties
A new CIS penalty regime was introduced in October 2011. The new regime is Schedule 55 Finance Act 2009 which will replace the current Section 98A CIS monthly and final penalties for returns due to be filed on or after 5 November 2011.
The new CIS penalty regime will reduce the number of penalties issued per return period to 4 and will consist of two fixed penalties and two tax geared penalties. Penalties will be issued as shown in the table below.
|Penalty Type||Penalty Amount||Penalty Date|
|Fixed Penalty 1||£100||The day after the filing date - the ‘penalty date’|
|Fixed Penalty 2||£200||Two months after the penalty date|
|Tax Geared Penalty 1||£300 or 5% of deductions shown on the CIS return||Six months after the penalty date|
|Tax Geared Penalty 2||£300 or 5% of deductions shown on the CIS return||Twelve months after the penalty date|
Note - the number of subcontractors on the return is not a factor when calculating the penalty under Schedule 55.
Interest will be charged on late payment of Schedule 55 CIS penalties and will accrue daily. Interest will start 30 days after the penalty was issued and will continue until it has been paid. SAFE/ETMP will calculate the interest charge when the penalty has been paid in full.
Where a tax geared penalty is subsequently recalculated to a higher amount than £300, interest will apply retrospectively from 30 days after the original penalty issue date.
Interest charges will be automatically amended or cleared as appropriate where the linked CIS penalty charge is amended or cleared.
Any interest objections you receive should be handled following existing guidance. There are no special arrangements for CIS penalty interest charges.
‘Capping’ CIS penalties
In order to reduce the number of CIS penalties issued and ensure a fairer penalty regime, Schedule 55 CIS penalties introduces a new ‘capping’ system. ‘Capping’ limits the total number of Schedule 55 CIS penalties issued to new contractors who have not yet filed any CIS monthly return.
More detailed information on ‘Capping’ can be found in the CISR Manual at CISR65080 and Compliance Handbook at CH62540.
The contractor has 30 days to appeal against the penalty from the penalty issue date and the penalty is held in SAFE/ETMP during that period. At the end of the 30 days the penalty is transferred to IDMS and a work item is created.
If the contractor appeals against the penalty whilst it is in SAFE/ETMP the penalty will be stood over and a work item will not be created in IDMS.
If the penalty has already moved to IDMS and is stood over, the work item will be cancelled. If the penalty has been paid SAFE/ETMP will move the payment to the UNALLOCATED PAYMENTS worklist
In these circumstances staff should not repay the amount whilst there are amounts stood over unless specifically requested to by the contractor
If the penalty is subsequently discharged to nil the amount on the UNALLOCATED PAYMENTS worklist can be repaid or reallocated.
In addition to the automated Fixed and Tax Geared penalties shown in the table at Appendix A, Schedule 55 provides for a higher penalty to be charged at month 12 if HMRC determine the withholding of the information on the return was deliberate or deliberate and concealed.
Where the withholding of the information was deliberate but not concealed, the tax geared penalty will be the greater of 70% of any deductions shown on the return or £1500.
Where the withholding of the information was deliberate and concealed, the tax-geared penalty will be the greater of 100% of any deductions shown on the return or £3,000.
These higher behaviour based penalties are not automated. They will normally be issued manually by Compliance Teams.
More detailed information about the new Schedule 55 CIS penalties can be found in the CISR manual at CISR65050 and the Compliance Handbook at CH60000.
The supporting legislation for the Schedule 55 CIS penalties is covered in the Finance Act 2009 at Schedule 55 paragraphs 8 to 13 “Penalties for failure to make a return”.
The supporting legislation for interest on the Schedule 55 CIS penalties is covered in the Finance Act 2009 at Schedule 53 - “Late payment interest”.
Section 98A CIS penalties
Section 98A CIS penalties were charged between October 2007 until the return period ending 5 October 2011.
The last automatic Section 98A CIS penalties were issued on 29 October 2011 for late filed and non receipt of CIS returns for periods ending 5 October 2011 and earlier.
No further Section 98A penalties will be issued automatically after this date, although the legal provision for issuing them manually, where circumstances dictate, will still exist. Any Section 98A CIS penalties that have a status of ‘Withheld’ or have been inhibited will not be issued even if the penalty status or inhibition setting changes.
Amendments to penalties already raised will continue to be issued, where necessary, but not where the amendment will increase the penalty charge.
Information about Section 98A CIS penalties is shown below so you can see:
- the penalty types
- how penalties were calculated.
Calculation of Section 98A penalties
On the 19th of each month if no return has been submitted a penalty was raised automatically for a minimum of £100. The penalty was charged for each whole month or part month that the return was late.
Automatic penalties were charged at £100 per 50 subcontractors on the return. When the return is received and contains more than 50 subcontractors all the penalties issued for that return will be increased appropriately. For example
|Number of subcontractors on return||Amount of penalty|
For each subsequent month the return is outstanding a further penalty (in the same amount as the original) was 12 months
If a monthly return had been outstanding for more than 12 months after the date of issue a final penalty was issued automatically as follows:
- first time a final penalty is required in a 12 month period £300
- second time a final penalty is required in a 12 month period £600
- third time a final penalty is required in a 12 month period £900
- fourth time a final penalty is required in a 12 month period £1,200
- fifth time a final penalty is required in a 12 month period £1,500
- all subsequent failures in a twelve month period £3,000.
Once a final penalty had been issued no further automatic penalties were issued for that return period.
The appeals process and work processes followed once an appeal was received and accepted follows the same as Schedule 55 CIS penalties.
Interest is not charged on any automatic Section 98A CIS penalties.
The CIS penalty types which can be issued to IDMS are:
- late return penalty
- final penalty
- increase following Commissioners hearing penalty
- contractor false declaration penalty
- contractor providing incorrect information penalty
- SA Subcontractor providing incorrect information penalty
- COTAX Subcontractor providing incorrect information penalty.
Information on how to identify the different types of penalty on IDMS is in DMBM524240.
CIS penalties from 2013-2014 onwards
The CIS penalty regime has not changed but, from 2013-14, all new CIS penalties created are accounted for on the PAYE contract account on ETMP, rather than the Automated Miscellaneous Charges (AMC) contract account. However, any existing penalties on the AMC contract account will remain and will not migrate to the PAYE contract account.
Interest charges raised on CIS penalties will be created on the same contract account as the CIS penalty that gave rise to the interest charge. For returns due on or after 19 June 2015, penalties can be appealed online using the Penalty Appeals Service (PAS). From April 2015 (when the obligation to file a nil return was removed), upon receipt of a nil return or notification that no return is due is received, any penalty for late filing will be cancelled. See DMBM519515 concerning penalty appeals.
Section 98A penalties are charged under Regulation 4(13) of the Income Tax (Construction Industry Scheme) Regulations 2005.