After six months “penalty-free” under the new CIS regime, the penalties will finally kick in on 19th October. Any contractor’s monthly returns (CIS300) due by that date, but not filed by then, will attract a minimum penalty of £100 each.

We say “minimum” because, in some cases, this could be grossly understated. The actual rules for late filing are that each return attracts a £100 penalty:

1. Per month
2. Per 50 subcontractors.

Let’s say, for example, that ABC Ltd has 60 subcontractors and the June 2007 return went astray and was subsequently not filed on time. If this return is not filed by 19th October, this will attract a penalty of £800. Don’t believe us? See below:

• The June 2007 return covers the tax period 6th June to 5th July. This is due for filing by 19th July. Late filing would attract a penalty of £100 but, as there 60 subcontractors (i.e. more than 50) this increases by a further £100.
• This penalty applies per month that the return is late. Missing the 19th July deadline will incur a penalty of £200 (see above). Missing 19th August, 19th September and 19th October deadlines as well will total £800.

The official statistics are worrying too. Since new CIS came into existence, only a maximum of 59% of all contractors have managed to file their return on time. (Source: HMRC press release) This information suggests that the late/non-filing trend over the summer could have netted HMRC at least £62million!

October also sees the commencement of the compliance review process. This presents a further problem: those contractors who haven’t got up to date yet, but who are registered for gross payment, could lose their gross payment status. Under the review process, contractors will be reviewed annually to ensure that they have complied with their tax obligations throughout the period since 6 April 2007. Failure to comply could make things difficult, both from a commercial and financial perspective.

The rules allow certain breaches to be overlooked, and the following will not compromise gross payment status:

Any, or all of the following in any twelve month period will be ignored:

• Three late submissions of your CIS monthly return – up to 28 days late.
• Three late payments of CIS/PAYE deductions – up to 14 days late.
• One late payment of Self Assessment tax – up to 14 days late.
• Any employer’s end of year return (form P35) made late.
• Any late payments of Corporation Tax – up to 28 days late, including where any shortfall in the payment has incurred an interest charge but no penalty.
• Any Self Assessment return made late.

To read more about retaining your gross payment status, have a look at our news article on the subject.

If you need help with your CIS filing obligations, contact Tanya Matheson at our office today for assistance.