It’s astonishing that as an independent software vendor how many construction contractor companies prefer to contact us to ask for advice on the new Construction Industry Scheme. The hottest topic at the moment are the CIS penalties that a lot of businesses are receiving for non-compliance with the new scheme, it’s rules and it’s deadlines.
CIS penalties have been rolling for five months now, three of which we already have the statistics for. The numbers are terrifying, a total of 118,458 penalty notices were issued in a three month period from October to December. Assuming that these three months are representative, that’s a minimum of £47 million a year in fines, paid for by construction businesses like yours.
So, what are the penalties for missing the deadline?
£100 for being late (i.e. missing the 19th of each month deadline). This fine is automatic and is automatically sent out to any contractor who has not logged their CIS300 with HMRC for any given month. It is a cumulative fine so if you missed a return it will then attract an additional £100 each month until the return is completed and the fine paid. If you are 28 days late, you will instantly lose your gross payment status privilege (if you have it). If you are unfortunate enough to have this happen to you, in future when your contractor clients come to verify your business in order to pay you, they will be informed by HMRC to deduct 20% from your invoices. This applies to partnerships and sole traders too.
I have received a penalty; what will happen my gross payment status?
HMRC have stated that they will “take [gross payment status] away from you” if you are “more than 28 days late” with a return or have sent “more than three late returns” in any twelve month period.
According to the ICAEW, HMRC have done some tests whereby they assumed that if penalties commenced as planned on 19th April 2007, that around 40% of contractors would fail the gross payment compliance test. The ICAEW website helpfully lists the seven most likely failure reasons:
1 or more PAYE/CIS payment made more than 14 days late
1 or more non-tax SA debts (interest charge, penalty) paid late
1 or more SA tax payment made more than 28 days late
4 or more PAYE/CIS payments made late but less than 14 days late
Employer end of year P35 and P14s due and not received
Corporation Tax instalment payment made more than 28 days late
Corporation Tax or Self Assessment Returns due and not received
For more information on retaining your gross payment status in New CIS, please refer to the CIS372 document.
I use recorded delivery to send my returns; is this ok?
Absolutely not. Recorded delivery is proof of postage and can provide proof that your item was signed for by somebody. Recorded delivery does not guarantee that your item was signed for by the person it was addressed to and it does not guarantee that your return is actually correct. It is highly possible that your return could be lost, rendered illegible or invalidated, with no sufficient explanation from HMRC. We have had several contacts from potential customers and read about many more who have been sending their returns by postal mail in plenty of time, only to subsequently receive a fine because the return wasn’t on the database, correctly, in time. HMRC have the right to use their own discretion when it comes to overturning penalties, but are not obligated to do so unless you have proof of receipt (see ‘How can software help maintain gross payment status and avoid fines’ below).
I sent my returns in using software, but didn’t get a receipt. What should I do?
If you have received a fine but you have no receipt then you are in a very difficult situation to appeal against the fine as there is no proof from HMRC that your return was correctly received.
If you have no electronic receipt after making your transmission it could mean that your transmission has been held up at the Government Gateway, awaiting a response from HMRC. This is common during peak times. We highly recommend making any returns via the Government Gateway in the early morning and avoiding the peak days of the 16th to the 19th of each month.
Lastly, be prudent. If your software returned no receipt for whatever reason – call the New CIS Online Helpdesk and ask them if your return has been received. They can advise you if you need to retry it. Until you have a receipt code, you are not protected.
I have received a penalty for a return that I sent late, but I did get a receipt. What should I do?
Follow the instructions on the penalty documentation to appeal. If you have the electronic receipt, enclose it as proof that your submission was not just sent on time – but received. If you are using software like ours and receiving receipts then you are unlikely to receive a fine if your return was in on time. None of our customers have ever received a fine whilst using our software.
How can software help maintain gross payment status and avoid fines?
Online filing software can communicate directly with HMRC. This is akin to hand delivering your returns directly onto the desk of the tax man and getting him or her to read your return and providing you with a receipt that all is in order.
Online filing software can be used right up to the deadline, even very late at night if you are burning the midnight oil to get your returns in.
Online filing software can check that your submission data is correct, giving it the “once over” before transmission to HMRC to help improve the chances of a successful return.
Because you get a proof of filing receipt, and peace of mind.
Gateway Solver, CIS Solver module
The CIS Solver module of Gateway Solver makes getting your CIS300 Monthly Return in on time easy. There is no database of subcontractors to fill in. Simply fill out the return on screen or import compatible data from a CSV file or import your data from your book keeping package or ERP software solution. It handles verifications too.
Gateway Solver / CIS Solver module
“Create and Send CIS300 Monthly Return”
Gateway Solver / CIS Solver module
“Monthly Return Success!”
Don’t forget verifications, the information correctness of your CIS300 or employment status!
I’ll blog about all these other issues separately 🙂
A bit about us
In a recent survey our own customers ranked us “Very Good” (4/5) at providing information on CIS compared to HM Revenue & Customs “OK” (3/5). However we cannot comment on anyone’s specific issues and have to defer to HMRC for anything further than generic advice. I recommend reading this page for yourself if you are a contractor concerned about CIS300 monthly return penalties.
We are HM Revenue & Customs recognised developers and have written a wide variety of software for handling subcontractor verification, payments, returns, employment status & online filing. You can find out more about these products and services at: www.evolvedsoftwarestudios.com.
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Mike, this is an excellent article. I’ll definately take a look at your software for my company’s requirements.
This one deals with the actual appeals. If you’re appealing a fine, good luck!
I had 3 or 4 months of late penalty notices come through my door, then when I checked, I had actually filed ALL months in question ON TIME! I had received a couple letters so ended up paying £300.50 out of panic! And then the next day I had 6 or so letters for penalty AMENDED notice and £0 was to pay. Where does the £300.50 go that I paid then? Hopefully towards the remaining PAYE bill!