CIS ― penalties for inaccurate returns

Produced by Tolley

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

  • CIS ― penalties for inaccurate returns
  • Penalties for filing inaccurate CIS returns
  • Penalty behaviours and rates
  • Reasonable care
  • Careless inaccuracy
  • Inaccuracy deliberate but not concealed
  • Inaccuracy deliberate and concealed
  • Potential lost revenue
  • Penalty reductions
  • Calculation of the penalty

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. The current regime came into effect on 6 April 2007.

This guidance note considers the penalty regime for inaccurate returns. For details on penalties for late filing of CIS returns and late payment of tax, see the CIS ― penalties guidance note.

CIS returns are discussed in more detail in the CIS ― compliance guidance note.

For a summary of the CIS, see the CIS ― overview guidance note.

Penalties for filing inaccurate CIS returns

A penalty applies when a person files the CIS return with HMRC, the return contains an inaccuracy which is careless or deliberate and which amounts to an understatement of the CIS withholding due.

The basis of calculation of penalties is to apply a percentage penalty (based on the behaviour of the contractor or his agent) to the potential lost revenue (PLR). Reductions are available for disclosure of the error(s) and for the level of help given to HMRC.

Penalty behaviours and rates

The behaviours which determine the rate of penalty are:

  1. the inaccuracy made despite reasonable care – no penalty due

  2. the inaccuracy was careless – the inaccuracy is careless if the person failed to tak

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