The Construction Industry Scheme (CIS) is a tax scheme in the United Kingdom that applies to businesses operating in the construction industry. It is designed to regulate tax payments and deductions for construction work carried out by contractors and subcontractors.
Failing to meet the CIS filing and payment deadlines can result in penalties and interest charges. This article aims to provide an overview of the penalties and interest charges associated with late CIS return.
Functioning of Construction Industry Scheme (CIS)
The CIS (Construction Industry Scheme) scheme requires contractors to deduct a percentage of their subcontractor’s payments for tax purposes, which is then paid directly to HM Revenue and Customs (HMRC). The scheme ensures fairness and transparency in the UK CIS industry,
- To participate in CIS, contractors are required to register with HM Revenue and Customs (HMRC) and verify the employment status of their subcontractors.
- Once the subcontractor’s status is verified, the contractor must deduct a percentage of their payments for tax purposes, depending on their tax status.
- Self-employed subcontractors registered for CIS can benefit from reduced tax deductions by obtaining a verification certificate from HMRC. This allows contractors to deduct a lower percentage of their payments for tax purposes.
- Contractors must also submit regular returns to HMRC, detailing payments made to subcontractors and tax deducted, to ensure correct and timely payment of tax liabilities and to prevent tax evasion and fraud in the industry.
CIS Late Filing Penalty
Contractors must submit their CIS returns online to HMRC by the 19th of each month, following the end of the tax month.
Accurate and timely submission of CIS returns is crucial to ensure that all tax liabilities are correctly calculated and paid on time, and to help prevent tax evasion and fraud in the construction industry.
Failure to submit CIS returns on time can result in penalties and interest charges being applied by HMRC.
The penalty is levied on the late submission of the CIS return. The detail of the penalty has been given below:
|
Late Payment Duration |
Penalty Amount |
|---|---|
|
1 Day Late |
£100 |
|
2 Months Late |
£100 initial + £200 next |
|
6 Months Late |
£300 initial + £300 next |
|
12 Months Late or More |
£600 initial + £300 next |
CIS Return submitted later than this may result in a supplementary penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever amount is more.
Interest on Late Payment and Overpayment
HMRC has now started to impose interest charges on late payments of CIS deductions.
Additionally, to ensure equal treatment, HMRC also provides compensation to businesses for any owed sums by paying interest on the repayments.
Starting from 21st February 2023, the new rates have been presented below for your convenience.
- Late Payment interest – 7% from 31 May 2023
- Repayment interest – 3.5% from 31 May 2023
Conclusion
It is of utmost importance to file CIS returns on time to avoid any penalties or other consequences. Late filing of CIS returns can result in significant financial penalties, and even worse, can negatively impact the reputation of a business. These consequences can be severe and have long-term impacts on the business.
Therefore, it is crucial for businesses to prioritize the timely filing of their CIS returns to avoid any negative impacts and maintain their reputation and financial stability.
