Penalties for late filing of construction industry returns

• Recommend on Facebook
• 
• Share on Linkedin
• share via Reddit
• Tweet about it
• Subscribe to the comments on this post
• Print for later
• Tell a friend

The new penalty and interest regimes for late filing of monthly construction industry returns come into force.

Section 106 and Schedule 55 of the Finance Act 2009 created a new penalty regime for late filing of tax returns for most direct taxes, including income tax, PAYE, NICs, the Construction Industry Scheme (CIS) and pension schemes.  When the new regime is introduced, taxpayers will have a right of appeal against all penalties and no penalty will be charged if taxpayers have a reasonable excuse for their failure.

The current penalties are:

• PAYE P35/P14 returns – automatic penalty of £100 for each 50 employees, then repeated each month.
• CIS returns – automatic penalty of £100 for each 50 subcontractors, then repeated each month, with a final £3,000 if filed over 12 months late.

The new penalty regime, as it applies to PAYE returns, is not yet in force and no date has yet been set, or even proposed, for its introduction.

However, the new regime for CIS returns was expected to come into force in October 2011 and, in the event, the effective date is 6 October 2011.  The new penalty structure is as follows:

1. Initial failure to submit a return by the filing date: a fixed penalty of £100.
2. Continued failure to submit a return 2 months after the filing date: a fixed penalty of £200.
3. Continued failure 6 months after issue of the first penalty: a penalty of the greater of (1) 5% of the liability to tax that would have been shown on the return, and (2) £300.
4. Continued failure 12 months after issue of the first penalty:
• where the failure involves the deliberate withholding of information that prevents HMRC from assessing the tax due,
• and withholding the information is deliberate and concealed: a penalty of the greater of (1) 100% of the liability to tax that would have been shown on the return, and (2) £3,000
• and withholding the information is deliberate but not concealed: a penalty of the greater of (1) 70% of the liability to tax that would have been shown on the return, and (2) £1,500.
• in any other case: a penalty of the greater of (1) 5% of the liability to tax that would have been shown on the return, and (2) £300.
• where the information on the return relates only to subcontractors registered for gross payment:
• and withholding the information is deliberate and concealed: a penalty of £3,000
• and withholding the information is deliberate but not concealed: a penalty of £1,500.
5. Where a contractor has just entered the CIS regime: fixed penalties in situations 1 and 2 above that do not exceed £3,000.

However, late filing penalties may be reduced, based on whether information due on a return is “disclosed”, either “prompted” or “unprompted”, and on the “quality” of the disclosure.

Information is “disclosed” if HMRC is

• told about it, and
• given reasonable help in quantifying any tax unpaid because of being withheld, and
• allowed access to records to check how much tax is unpaid.

Disclosure of relevant information is “unprompted” if it occurs when there is no reason to believe that HMRC has discovered or is about to discover the relevant information.  Otherwise, it is “prompted”.

The “quality” of disclosure includes timing, nature and extent.  Depending on the quality of the disclosure, HMRC is required to reduce

• 100% penalties to a lower percentage, but not below
• 30%, if the disclosure is unprompted,
• 50%, if the disclosure is prompted
• 70% penalties to a lower percentage, but not below
• 20%, if the disclosure is unprompted,
• 35%, if the disclosure is prompted.

But no penalties may be reduced below £300 or, in the case of the higher CIS penalties, £3,000 or £1,500 as appropriate.

Section 101 to 103 of the Finance Act 2009 also comes into force from 6 October 2011 in relation to CIS penalties.  These sections provide that, where a contractor fails to pay any of the above penalties, HMRC will charge interest on the amount unpaid, counting from the date on which the penalty is due and payable.

Further information:  

The Finance (No. 3) Act 2010, Schedule 10 and the Finance Act 2009, Schedule 55 and Sections 101 to 103 (Appointed Day, etc) (Construction Industry Scheme) Order 2011

Changes to penalties for late CIS contractor returns

Tags: construction industry, penalties, Recent Payroll News

This entry was posted on Friday, October 7th, 2011 at 16:09 and is filed under Penalties. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.