ECH21245 - CIS from 06-04-07 - Failure to Submit a Monthly Return - First 12 Months of Lateness

ECH14715 provides information on a contractors requirement to submit a monthly return (CIS300).

Section 98A(2)(a) TMA 1970 provides for a penalty where a contractor fails to submit a return by the due date. This applies even if the return is a NIL return.

No penalties will be sought for failure to submit a return unless the return is still outstanding on or after 20 October 2007 in accordance with Regulation 4(13) of the Income Tax (Subcontractors in the Construction Industry Scheme) Regulations 2005.

Where HMRC is expecting a return these penalties will be issued automatically by the CIS system.

Penalties will not be issued by the CIS system where

• the contractor has not registered or
• the contractors whereabouts are unknown (RLS) or
• the scheme has been cancelled for a period because the contractor has told HMRC that he will not be paying subcontractors or
• HMRC has inhibited the issue of penalties on the CIS System.

CIOs must

• ensure that penalties are pursued wherever a failure to submit a return has occurred.

Where CIT staff pursue this penalty they should ensure that DMB do not duplicate it. This may involve inhibiting the penalties on the CIS system ( ECH14265).

The penalty is fixed at £100 per month or part month for each batch or part batch of 50 subcontractors. For example,

A return of 53 subcontractors which is late by 4 months 15 days.

The penalty is £1,000, that is

50 subcontractors (1 batch) at £100

3 subcontractors (part batch) at £100

Total £200

£200 x 5 (4 months + 1 part month) = £1,000.

See further examples of how this penalty is calculated.

This penalty differs from the penalty sought on a P35 or CIS36 return that is late because it is not capped to the amount due on the return. So in this example even if the amount due on the return was £600 the penalty would remain at £1,000.

Where the penalty is to be sought as part of the review the CIO must

• liaise with DMB and
• arrange for the CIS system to be inhibited if necessary ( ECH14265).

The CIO should

• seek a contract settlement to include the liability outstanding, interest and penalties.

Where an employer submits a return during the review this should be date stamped and sent to the Processing Centre, Netherton with a covering memo.

If the failure goes beyond 12 months then in addition a penalty under Section 98A(2)(b) may also be considered ECH21250.

Because the CIS300 return is a monthly return it is important that CIOs

• discuss failure to submit returns with the contractor as soon as the problem is identified.

This will encourage the contractor to submit subsequent returns on time and prevent further penalties accruing.

Where a late return is found to be incorrect Section 98A(4) penalties also need to be considered ECH21255.