Penalties - frequently asked questions

Penalties for late submission of the CIS300 contractor monthly return

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Q. What is this page about?

A. The contractor’s monthly return, detailing all payments made to subcontractors and any deductions made from those payments, must be sent on paper, or electronically, to reach us within 14 days of the end of the tax month to which it relates. This means the due date for each return is 19th of the month. If you have not paid any subcontractors in the period, a 'nil' return must be made by the same date, but can be made by telephone.

From 19 October 2007, we have charged a penalty on any contractor monthly return, including a nil return, that was still outstanding by its due date.

This page sets out in some detail how the penalty system works and how it may affect you or your client.

If an agent is authorised to act for a contractor's CIS scheme, a copy of any penalty notice will be issued to the agent.

Q. Why is there a penalty system for the contractor monthly return?

A. It is important that we receive information in good time about what contractors have, or haven’t, paid to subcontractors each month for two reasons. First, we need timely information to enable us to monitor payments in the industry and tackle the dubious practices of which those people in the industry who follow the rules rightly complain. Second, the return is a record of the deductions made, by the contractor, from individual subcontractors. We need that evidence that a deduction has been made, and the monies paid over to us, before we can deal with any repayment that the subcontractor might claim. Unless there is a sanction for failing to provide that information by a certain date, there is no incentive to meet the deadline. The CIS legislation therefore provides for a penalty for failure to meet the deadline.

 

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Q. When did HMRC start charging penalties for the late submission of the contractor monthly return?

A. We started charging penalties for the late submission of monthly returns from October 2007.

Q. Will penalties only apply to the returns due from October 2007 and later months?

A. No. We charged an initial penalty for any return that was still outstanding at the close of business on 19 October 2007. For example, if the return for the month ending 5 June 2007 was still outstanding at 19 October 2007, together with the return due for the month ending 5 October 2007, both returns will have incurred a first penalty in October 2007.

Q. Will penalties for outstanding returns due earlier than October 2007 be applied retrospectively?

A. No. But, any returns due for the months ended 5 May 2007 onwards that were still outstanding on 19 October 2007 will have been charged a penalty for October and for every subsequent month that those returns had not been made. Penalties were not charged for filing dates before October 2007. For example, if a return due for the month ended 5 June 2007 was still outstanding at 19 October 2007, no penalties will apply for missing the monthly deadlines in June, July, August and September, but a penalty would have been charged for the return not being filed by 19 October 2007 and will have continued each month until such time as is the return was (or is) received by us.

Q. How much is the penalty?

A. An automatic, interim, penalty of £100 is issued for each return that we have not received by its due date of 19th of the month and this will be repeated on the 19th of each month thereafter until we receive it. So, if by 19 October 2007, a contractor has failed to send in returns for the months ended 5 May, 5 September and 5 October 2007, three penalties of £100 each (£300 in total) will be issued shortly after 19 October 2007. If those returns were still outstanding at 19 November 2007, a further three penalties of £100 will have been issued and that will continue for every month, or part month, thereafter until the returns are submitted. When we eventually receive the returns, we may issue further penalty notices as described in the next section 'Why may the penalty be re-calculated when HMRC receives the return?'

 

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Q. Why may the penalty be re-calculated when HMRC receives the return?

A. Penalties for the late submission of a monthly return are based on the number of subcontractors shown on the return. The penalty is £100 for all returns showing between 0 and 50 subcontractors and this penalty increases by £100 for each additional 50 subcontractors, or part of 50 (with no maximum limit on the amount of penalty charged). Therefore, a return showing 55 subcontractors will incur a penalty of £200 each month and a return showing 110 subcontractors will incur a penalty of £300 each month.

When a return is not received by its due date, we issue an automatic, interim, penalty of £100 for that month and for each subsequent month that the return remains outstanding. When we finally receive the return, we count the number of subcontractors shown and adjust the amount of the penalty, where necessary. This means that if we have issued an interim penalty for a late return that is eventually received showing 110 subcontractors, we will then issue a penalty demand to the contractor of £300 for each month that the return was outstanding and we will show a credit for any amount we know has been paid against the interim penalty or penalties.

Likewise, if a return misses six due dates, it will incur six, separate, automatic interim penalties of £100. When we finally receive it, if the return shows more than 50 subcontractors, a penalty notice will be issued for each individual penalty showing the full charge. In the example of a return that was six months late, if the return showed 110 subcontractors on its receipt, six penalty notices will be issued in the amount of £300 each (that is, £300 penalty due for each late month while the return was still outstanding). The penalty notices will show a credit for any amounts we know have been paid against the interim penalties. So, if the contractor had paid each of the £100 interim penalties on receipt of the respective notices, on receiving the return we will be sending out six penalty notices of £300 making a total penalty of £1,800. However, in this example, from this sum we will allow credit for the £600 already paid against the interim penalties so a balance of £1,200 would still be due.

Q. Are penalties charged each month indefinitely?

A. Penalties for failure to file a return by the due date are charged for up to twelve months for each return that remains outstanding for that length of time. Where exceptionally, a return is still outstanding after twelve months, an additional, final, penalty of up to £3,000 will be charged.

Q. Are penalties charged for returns that include no subcontractors?

A. Yes. A return that shows no subcontractors, or a 'nil' return as it is known, will also incur a penalty of £100 for each month it is not received by us on time. To avoid these penalties, you should send in any 'nil' returns to reach us by the due date or you may telephone our CIS Helpline on 0845 366 7899 and report a 'nil' return. If you do this by the due date, you will avoid a penalty. If you think you won't be paying any subcontractors for the next six months you can also show this on the return or tell us when reporting a nil return by telephone.

 

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Q. What happens if a later amendment to my return means the original penalty was too much?

A. If we have charged you a penalty for a return you have made late and you later think that penalty is too much following a subsequent amendment to that return, please let us know in writing. We will look at the matter for you and if we agree with what you say will correct the penalty, where necessary. For example, if we received your return, showing 51 subcontractors, 10 days after the due date, we will charge you a penalty of £200. If you later realise that, through an error in completing that return, you have included two subcontractors who, for whatever reason, should not have been included on that return, you will need to tell us about the amendment. You should also write and ask us to recalculate the penalty where you think it should now be for a lower amount.

On the other hand, if your original late return showed 49 subcontractors and was received by us 10 days late, you will have been charged a penalty of £100. If you later realised that two subcontractors were missing from that return and asked us to correct it, there will be a further penalty due of £100 (as the corrected return now shows 51 subcontractors).

Q. How will I keep track of all these penalties?

A. We don't expect many contractors will let themselves get into a position where penalties for multiple returns are being sent out. We will issue separate penalty notices that will detail the returns to which they relate and the amount of penalty charged in respect of each outstanding return. We will also show, on these notices, credit for any interim penalties that may have been paid before the return was received by us.

Q. What if I don't agree with any penalties?

A. You have the usual right of appeal over any penalty notice that we send you. Details of how and where to appeal will be included with the penalty notice. If we cannot agree with your reasons why a penalty should not have been charged, the appeal will be decided by the independent Appeals Commissioners.

Q. Will penalties affect my gross payment status as a subcontractor?

A. The issuing of penalties themselves will not affect your gross payment status. However, the underlying late submission of the returns will affect your gross payment status as a subcontractor. We will take this away from you if you send one return in more than 28 days late or you send us more than three late returns - up to 28 days late - in any twelve month period.