The Construction Industry Scheme (CIS) continues to be considered by HMRC as an area with a high risk of non-compliance, so the application of penalties for failures to comply with the scheme’s legislation is rigidly applied.
The strictest penalties imposed by HMRC relate to the failure to submit a monthly CIS300 return on time, especially as these penalties are generated automatically as soon as the filing date has passed. The first fixed penalty of £100 becomes due as soon as the return is one day late and further penalties arise where the return remains outstanding at intervals of 2, 6 and 12 months.
It is important to remember that every late monthly return has its own set of penalty considerations, meaning that each one could be subject to four separate penalty charges. The 12 months’ penalty can increase significantly if HMRC consider that the contractor’s behaviour behind the failure is deliberate. In this case, the minimum penalty could be at least £1,500 or £3,000 per return in addition to the 1, 2 and 6 months’ penalties.
Even where returns are submitted punctually, penalties can still be imposed where errors are made and also where the contractor fails to follow the correct processes in relation to a monthly return or in providing the appropriate information to a subcontractor.
Where HMRC identify an error or an incorrect CIS300 monthly return, they will consider the behaviour that led to the inaccuracy occurring, in order to decide the level of penalty. Four levels of behaviour are considered where inaccuracies occur; (i) with reasonable care, (ii) careless, (iii) deliberate, and (iv) deliberate and concealed.
Where it is found that reasonable care has been taken, despite the error, HMRC will not charge a penalty. When the error is due to careless behaviour, they may still consider suspending a penalty, where steps can be taken to help the contractor avoid such errors in the future and where it is considered likely that those actions can and will be successful.
Penalties can also be considered by HMRC in respect of the following errors/failures:
- Failure to make a declaration on CIS300
- Making an incorrect declaration on CIS300
- Failure to provide the subcontractor with a Payment & Deduction Statement
- Providing the subcontractor with an incorrect Payment & Deduction Statement
Clearly there are a number of compliance failures that will undoubtedly lead to HMRC charging a penalty, which, potentially, could be disproportionately high compared to the error made and the original tax loss. It is vital, therefore, that the contractor operates CIS diligently and has systems and processes in place to ensure compliance, thereby avoiding the potential for these penalties.
If you have any questions regarding the CIS penalty regime or would like to discuss further the issues raised, please call us on 020 8515 2975. or email us at firstname.lastname@example.org. With over 20 years’ experience in this field, The Guild can assist with all aspects of CIS compliance.
This article was originally published on the accountingWEB Insight Exchange on 5th January 2021.