Guidance

Penalties for failure to file returns on time — the Construction Industry Scheme (CIS) — CC/FS18b

Updated 8 April 2022

This factsheet contains information about the penalty or penalties we’ll charge if you do not file your monthly CIS returns on time. The penalty rules in this factsheet apply to CIS returns with a filing date of 19 November 2011 or later. The earliest CIS return they apply to is, the return for the period 6 October 2011 to 5 November 2011.

This factsheet is one of a series. For the full list of factsheets in our compliance checks series, go to www.gov.uk and search for ‘HMRC compliance checks factsheets’.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with us, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more information, go to www.gov.uk/get-help-hmrc-extra-support.

The penalties when CIS returns are late

If any of your CIS returns are one day late, we’ll charge an initial fixed penalty of £100.

If we still have not received that return:

• 2 months after the date it was due, we’ll charge a second fixed penalty of £200
• 6 months after the date it was due, we’ll charge a further penalty of £300 or 5% of any liability to make payments that should have been shown in the return
• 12 months after the date it was due, we’ll charge a second further penalty — the amount of this penalty will depend on why your return was late

The amount we’ll charge will be either £300 or 5% of any liability to make payments, or a ‘higher’ penalty of:

• up to 100% of any liability to make payments
• a minimum penalty of £1,500 or £3,000

We’ll charge a ‘higher’ penalty if we find out that you deliberately withheld information from us.

There’s more information about this and about how we work out the second further penalty later in this factsheet. ‘Liability to make payments’ is the amount of any CIS deductions that a contractor should have deducted from payments to subcontractors and shown on their monthly CIS return.

When a contractor first files a CIS return, if earlier CIS returns are also late, we may ‘cap’ the total amount of the £100 and £200 fixed penalties at a maximum of £3,000 for some returns. For more information about capping see page 2 of this factsheet.

Where a CIS return only relates to subcontractors registered for gross payments, there’s no liability to make payments shown on the return. We therefore charge a penalty of £300 when the return is 6 months late. When the return is 12 months late we charge £300 or £1,500 or £3,000 depending on why your return was late.

What happens if you have a reasonable excuse

We will not charge you any penalties for filing a return late if you had a reasonable excuse for doing so — as long as you filed the return without any unreasonable delay after the excuse had ended.

A reasonable excuse is something that stopped you from meeting a tax obligation on time which you took reasonable care to meet. It might be due to circumstances outside your control or a combination of events. Once the reasonable excuse has ended, you must put things right without any unnecessary delay.

Whether you have a reasonable excuse depends upon the circumstances of the failure to meet the obligation and your particular situation and abilities. This may mean that what is a reasonable excuse for one person may not be a reasonable excuse for someone else. If you think you’ve a reasonable excuse please tell us. If we accept that you have a reasonable excuse, we will not charge you a penalty.

We cannot normally accept the following as a reasonable excuse:

• lack of funds to pay — unless it’s because of circumstances outside your control
• reliance on another person to file your return on your behalf, unless you took reasonable care to avoid the failure to file

If there was anything about your health or personal circumstances that made it difficult for you to file your returns on time, please tell the officer that is carrying out the check. Telling them will mean that they can take this into account when considering whether you had a reasonable excuse.

How we charge penalties for late CIS returns

In most cases we’ll automatically charge you a penalty as soon as each return is more than one day late, 2 months late, 6 months late and 12 months late.

When a return is 6 months late and 12 months late, we’ll normally automatically charge you a penalty of £300. When you then file the return, if this shows any liability to make payments, we’ll normally work out whether 5% of any liability to make payments is more than the £300 we’ve already charged. If it is, we will automatically charge you the additional amount.

In some cases we will not have been able to automatically charge you these penalties as soon as they became due. For example, when we did not know that you needed to file a CIS return. In such cases we’ll normally send you a notice of penalty assessment when we find out about the late CIS return. The notice of penalty assessment will then include all of the penalties that are due for each return that you did not file on time.

If we automatically charged a penalty of £300 when a return was 6 months or 12 months late and we then charge you a penalty for the same return based on a percentage of any liability to make payments shown on the return, we’ll send you a notice of penalty assessment for the difference.

During a compliance check we may estimate the amount of any liability to make payments that should have been shown on a return. If we do this, the 6-month and 12-month penalties that we charge will be based on our estimate. If we estimate the liability to make payments that should have been shown on the return, we’ll also send you an assessment for any CIS deductions that should have been paid.

There are some circumstances when different rules may apply to the way we work out these penalties. For more information see below.

When we may cap the total amount of £100 and £200 fixed penalties

When a contractor first files a CIS return, and has not previously filed any CIS returns for earlier periods we’ll cap the total amount of £100 and £200 fixed penalties that we charge for that first and earlier returns to a maximum of £3,000. We will not cap penalties for returns that are due for any later periods.

The rules for capping only apply to monthly CIS returns due to be filed on or after 19 November 2011.

How we decide the amount of penalty we charge when a return is more than 6 months and 12 months late

Once a return is 6 months and 12 months late, we normally automatically charge a penalty of £300 or 5% of any liability to make payments that should have been shown on the return. The amount of this penalty will be based on the information we hold at the time.

When we receive the return or if we receive any further information that may affect the amount of penalty due, we may need to change the amount of penalty that we’ve charged. For example, if we’ve automatically charged £300 and your late return shows a liability to make payments that is more than £6,000 we would increase the amount of the penalty. This is because 5% would be more than £300.

When a return is 12 months late we also need to consider whether to charge a ‘higher’ penalty or whether we need to increase the amount, or the percentage rate, of the second further penalty that we’ve already charged. We’ll do this if:

• by failing to file the return you knew that you had deliberately withheld information from us
• you took action to conceal the withholding of information from us

Special rules for the penalties we charge when a return is 6 months or 12 months late

If we’ve capped the £100 and £200 fixed penalties to £3,000, special rules may apply to the way we work out the further penalties when a return is 6 months and 12 months late.

Under these circumstances, we’ll normally charge you 5% of any liability to make payments, even if this is less than £300.

These special rules do not however apply to the 12-month second further penalty if you deliberately withheld information from us by failing to file your return.

When we may charge you a ‘higher’ second further penalty when a return is more than 12 months late

We’ll charge you a ‘higher’ second further penalty or increase the amount we’ve already charged if your return is more than 12 months late and you withheld information that:

• would have helped us establish your correct liability to make payments
• you knew it would have helped us establish your correct liability to make payments

We may also charge you a ‘higher’ second further penalty or increase the amount we’ve already charged if your return is more than 12 months late and:

• the return relates only to subcontractors registered for gross payment
• you knowingly withheld the information on the return

We’ll normally only consider charging you a higher second further penalty if, during a compliance check, we find out that you’ve deliberately withheld information. We call this ‘deliberate behaviour’. The amount of the second further penalty that we charge you will depend on the type of behaviour. These are explained below.

Deliberate behaviour

This is where you knew that, by failing to file your return on time, information was being withheld from us.

Deliberate and concealed behaviour

This is where you knew that information was being withheld from us and you took additional steps to conceal this. This is the most serious type of failure and attracts the highest penalties.

If the behaviour is not deliberate or deliberate and concealed, we call it ‘non-deliberate’.

Why you should tell us about information you’ve withheld before we find out about it

If you know that you’ve withheld information, you should tell us straightaway. If you tell us about information that you’ve withheld before you had any reason to believe that we were about to find out about it, we call this an ‘unprompted disclosure’. If you tell us about information that you’ve withheld at any other time, we call it a ‘prompted disclosure’. The penalty percentage rate for unprompted disclosures will be smaller than for prompted disclosures.

What you can do to reduce the percentage rate of any higher second further penalty

This section does not apply to returns that only include subcontractors who are registered to receive gross payments.

When your return is 12 months late we’ll normally charge you an automatic second further penalty of 5% of the liability to make payments on the return or £300 if we have not received the return.

The circumstances when we may charge you a higher second further penalty or increase the amount we’ve already charged you is explained on page 4 of this factsheet.

If we charge you a higher second further penalty or increase the amount we’ve already charged, we can reduce the amount of any penalty we charge you depending on our view of how much assistance you gave us when you make a disclosure. We refer to this assistance as the ‘quality of disclosure’ or as ‘telling, helping and giving’.

Examples of making a disclosure include:

• telling us about, or agreeing that you withheld information
• telling us everything you can about the information that was withheld as soon as you can
• helping us to work out any liability to make payments by using your own records
• helping us to understand your figures or records
• telling and helping us by answering our questions in full
• giving us access to your records by sending us your return and any other documents we need to accurately work out any liability to make payments

We’ll reduce the penalty by the maximum amount possible when we work out the higher second further penalty, if you:

• tell us everything you can about any withheld information as soon as you know about it or you believe we’re about to find it
• do everything you can to help us correct it

If you delay in making a disclosure, you may still be entitled to a reduction but it will be smaller. If we do not need any extra assistance from you, we’ll give you some reduction for telling, helping and giving.

Letting us know about any special circumstances

If there are any special circumstances that you believe the officer dealing with the check should consider when working out the penalty, you should let them know straightaway.

How we work out the amount of any increased second further penalty for deliberately withholding information

There are 6 stages in working out the amount of the increased penalty.

1 Calculating any liability to make payments

If there’s any liability to make payments, the penalty will be a percentage of any liability to tax that should have been shown on the return. The officer dealing with the check will explain how this is worked out. Where there is no liability to make payments we’ll increase the fixed penalty we charge.

2 Determining our view of the ‘behaviour’

When a return is more than 12 months late, we need to find out the reason why or the behaviour. What we mean by behaviour is explained on page 3 of this factsheet. The type of behaviour will determine whether we increase the amount of the second further penalty.

3 Deciding whether there was an unprompted or prompted disclosure

This does not apply to returns that only include subcontractors who are registered to receive gross payments. Where there is a liability to make payments this determines the minimum penalty percentage that we can charge. This is explained in more detail in the section headed ‘Why you should tell us about information you’ve withheld before we find out about it’, on page 3 of this factsheet.

4 Deciding the percentage range or amount of the increased penalty

Where there’s a liability to make payments, the increased penalty percentage rate depends on whether the behaviour was ‘deliberate’ or ‘deliberate and concealed’ and on whether the disclosure was ‘prompted’ or ‘unprompted’. The following table shows the penalty ranges.

Type of behaviour	Unprompted disclosure	Prompted disclosure
Deliberate	20% to 70% of the liability to make payments or a minimum of £1,500	35% to 70% of the liability to make payments or a minimum of £1,500
Deliberate and concealed	30% to 100% of the liability to make payments or a minimum of £3,000	50% to 100% of the liability to make payments or a minimum of £3,000

Where there’s no liability to make payments, the amount of the increased penalty will depend on whether the behaviour was ‘deliberate’ or ‘deliberate and concealed’. The following table shows the amount of the increased penalty for each behaviour.

Type of behaviour	Amount of increased penalty
Non-deliberate	No penalty increase so we charge a minimum of £300 (unless the penalty is capped)
Deliberate	£1,500
Deliberate and concealed	£3,000

5 Working out the reductions for the quality of disclosure (also referred to as ‘telling, helping and giving’)

This does not apply to returns that only include subcontractors who are registered to receive gross payments.

The quality of disclosure (telling, helping and giving) determines where the penalty will fall within the penalty range. The reduction we give depends on how much assistance you give us. For:

• telling — we give up to 30%
• helping — we give up to 40%
• giving access to records — we give up to 30%

When we work out the quality of disclosure for deliberate and deliberate and concealed failures, we’ll also consider how long it’s taken you to tell us about the information you withheld. If it’s taken you a long time, (such as 3 years or more), we’ll usually restrict the maximum reduction we give for the quality of disclosure to 10 percentage points above the minimum of the penalty range. This means you will not benefit from the lowest penalty percentage that’s normally available.

6 Calculating the increased penalty percentage rate or amount

The increased penalty percentage rate or amount is determined by the penalty range and any reduction for the quality of disclosure, where these apply.

Example

We established that a customer had deliberately withheld information about their liability to make payments, by failing to file their return for that year.

When challenged, they told us about the liability, they sent us the return and admitted that they had deliberately withheld the information. This was a prompted disclosure.

The penalty range for deliberate behaviour with a prompted disclosure is 35% to 70% of the liability to tax.

The reduction for quality of disclosure (telling, helping and giving) was 100%.

Steps	Calculation example
To work out the penalty percentage rate, we first work out the difference between the minimum and maximum penalty percentages.	70% minus 35% = 35
We then multiply that figure by the reduction for quality of disclosure to arrive at the percentage reduction.	35 × 100% = 35%
We then take off the percentage reduction from the maximum penalty percentage we can charge.	70% minus 35% = 35%
This gives us the increased penalty percentage rate.	35%

What happens when we charge you a penalty

We’ll send you a calculation of the amount we believe is due. We’ll try to agree this amount with you. We’ll either send you a penalty assessment notice or we may ask you to enter into a contract with us to pay the penalty together with any tax or interest you owe us.

If you’ve deliberately done something wrong

We may carry out a criminal investigation with a view to prosecution if you’ve deliberately done something wrong, such as:

• given us information that you know is not true, whether verbally or in a document
• dishonestly misrepresented how much tax you owe, or claimed payments you’re not entitled to

Managing serious defaulters

If you deliberately got your tax affairs wrong, and we find this during the check, we may monitor your tax affairs more closely. We have an enhanced monitoring programme called ‘managing serious defaulters’. For more information, read factsheet CC/FS14, ‘Managing serious defaulters’. Go to www.gov.uk and search for ‘CC/FS14’.

What to do if you disagree

If there’s something that you do not agree with, please tell us.

If we make a decision that you can appeal against, we’ll write to you about the decision and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days, you can:

• send new information to the officer you’ve been dealing with and ask them to take it into account
• have your case reviewed by an HMRC officer who has not been involved in the matter
• arrange for an independent tribunal to hear your appeal and decide the matter

Whichever you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. We call this Alternative Dispute Resolution (ADR).

ADR is only available for disputes that relate to specific tax areas. The officer dealing with the check will tell you if ADR is available for your dispute. For more information about appeals and ADR, read factsheets:

• HMRC1, ‘HM Revenue and Customs decisions — what to do if you disagree’
• CC/FS21, ‘Alternative dispute resolution’

Go to www.gov.uk and search for ‘HMRC1’ or ‘CC/FS21’.

Your rights if we’re considering penalties

The European Convention on Human Rights gives you certain important rights. If we’re considering penalties, we’ll tell you. We’ll also tell you that these rights apply and ask you to confirm that you understand them. These rights are that:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them — the amount of help that you give us when we’re considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser —particularly if you do not already have one
• if you disagree with us about the tax or any penalties we believe are due, you can appeal — if you appeal about both tax and penalties, you have the right to ask for both appeals to be considered together
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you’re entitled to have the matter of penalties dealt with without unreasonable delay

You can find full details about these rights in factsheet CC/FS9 ‘The Human Rights Act and penalties’. Go to www.gov.uk and search for ‘CC/FS9’.

Our privacy policy

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to www.gov.uk and search for ‘HMRC Privacy Notice’.