Construction industry scheme penalties

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Construction industry scheme penalties
CIS returns and payment of tax
Late filing penalties for CIS returns
Penalties for late payment of tax withholding under CIS
Penalties for inaccurate returns

The construction industry scheme (CIS) was devised to limit the amount of tax lost as a result of under-declarations or failures to notify chargeability by sub-contractors who came to work in the UK for relatively short periods without paying any tax.

The scheme operates to withhold tax at source at the point of payment, thereby reducing the risk of a subsequent default by the sub-contractor. Although, if the sub-contractor can prove he has complied with his tax obligations he is able to receive payments gross.

The scheme has undergone regular changes since its inception and the current regime came into effect on 6 April 2007.

For a summary of the CIS, see the Construction industry scheme overview guidance note. For an in-depth discussion on contractors and sub-contractors, see the Contractors under the construction industry scheme and Sub-contractors under the construction industry scheme guidance notes.

CIS returns and payment of tax

The contractor usually pays over the tax withheld to HMRC 14 days from the end of the tax month (ie nineteenth day of each month). If the payment is made electronically, the deadline is extended by three days (the payment must be made by the last working day before the deadline if this falls on a weekend or bank holiday). The payments can be made quarterly rather than monthly if the average monthly tax payment is less than £1,500. The payments are usually made together with income tax and national insurance contributions collected via PAYE.

SI 2005/2045, regs 7, 8 (subscription sensitive)

The contractor must also submit monthly CIS returns to HMRC. CIS returns must normally be filed electronically, although paper returns may still exceptionally be made where there are religious objections to electronic communication or there are reasons why electronic submission is not practicable (see the Contractors under the construction industry scheme for more details).