Construction Industry Scheme (CIS) penalties

The construction industry scheme (CIS) comprises a set of special rules for tax and national insurance (NI) for those working in the construction industry. The scheme applies mainly to contractors and sub-contractors involved in construction, however certain businesses that are not in the business of construction but have a significant amount of annual spend may also count as contractors.

The penalties for late submission of CIS contractor monthly returns changes from October 2011. The first return to attract a penalty under the new penalty regime will be the return due for the month ended 5 November 2011. HMRC recently published for comment an order that will bring the new late filing penalty regime into effect.

In November 2010, HMRC issued an update accepting that in certain situations the penalties charged under the new system may be lower than those currently charged.

For example, the penalty under the new rules may be lower if:

-       More than one penalty has been charged in respect of any one monthly return.

-       More than £100 has been charged in respect of any one monthly return.

-       A new contractor has been charged penalties for more than one late monthly return.

HMRC allows a contractor who has been charged a penalty to request a calculation of how much they would have been charged under the new penalty regime. If the penalties would have been less under the new rules, HMRC will reduce the penalties to the lower amount even though the new penalties do not start until October 2011. Where the penalty under the current rules is less than that would be imposed under the new rules, the current lower penalty stands.