Reference Index


The employment status of an individual is important for determining their treatment, both for taxation purposes, and in respect of any applicable rights under UK employment law.

Broadly speaking, an individual will fall into one of three categories;

  • Employee
  • Worker
  • Self-Employed

The question of whether an individual works under a contract of service (and is therefore an employee or worker) will involve consideration of both the facts and the law.

Status is complicated, with wide-ranging tax consequences. Contact The Guild to discuss your specific needs with our experts.

Perhaps one of the most notable changes with the inception of the post 2007 rules was the introduction of the CIS penalties regime. Many contractors are often caught unaware by the significant penalties they can be facing for failures under the scheme.

The current penalties regime under schedule 55 FA 2009, which came into effect as of October 2011 provides:

Failure to submit monthly return by 19th month= fixed penalty of £100
Monthly return is still outstanding after 2 months= furthur fixed penalty of £200
Monthly return outstanding after 6 months = penalty is greater of £300 or 5% of the CIS deductions due on the return
Monthly return outstanding after 12 months = penalty is greater of £300 or 5% of the CIS deductions due on the return

These penalties also apply to NIL returns, although from 6 April 2015 a penalty in respect of any months for which a NIL return is due will not usually be charged by HMRC.

Additional penalties can be levied for returns outstanding after 12 months as follows:

For information deliberately withheld but not concealed from HMRC = up to 70% of the CIS deductions or a minimum of £1,500
For information deliberately withheld and concealed from HMRC = up to 100% of the CIS deductions or a minimum of £3,000

Where an incorrect monthly return has been submitted, the penalty regime that applies for returns submitted from 19 April 2009 falls under Schedule 24 FA 2007. The level of penalty is based on the ‘behaviour’ that led to the error being made.

In addition to the above penalties, HMRC can levy up to £3,000 per monthly return submitted if you incorrectly tick the self-employed status declaration when your subcontractors should have been declared as employed.

The final CIS specific penalties which can be imposed are:

Failure to make a declaration on the monthly return = up to £300, plus £60 per day outstanding
Failure to provide a Payment and Deduction statement = up to £300, plus £60 per day outstanding
Providing an incorrect Payment and Deduction statement = up to £3,000
Failure to provide CIS records to HMRC for inspection = up to £300, plus £60 per day outstanding
Making a false statement in order to obtain gross payment status = up to £3,000

If your organisation makes use, or wishes to make use, of subcontract labour to which CIS applies, The Guild can help you by;

  • accounting for tax to HM Revenue & Customs on payments to operatives;
  • dealing with all paperwork associated with such operatives;
  • declaring to HM Revenue & Customs that the operatives have been appraised as self-employed;
  • dealing with any fines, penalties or levies, or claims for national insurance contributions, issued by the HMRC;
  • managing and defending Employment Tribunal claims;
  • indemnifying clients fully in relation to the above.

Please note: it is likely that your organisation will still need to render a CIS return.

For more information about CIS or The Guild, please make contact on 020 8515 2975.

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