CIS Administration and the Risks of Getting it Wrong

Whilst HMRC’s CIS scheme has seen a number of revisions over the years, with the last being in 2016, It remains a time consuming and complicated process for all contractors large or small.

The Burden of CIS Administration

Your responsibilities are to:

• Verify each sub-contractor with HMRC before you pay them, and
• Calculate and deduct CIS tax in accordance with the verification details
• Inform the sub-contractor the amount that they will be paid
• Submit electronically your CIS300 report by the 17th of each month, detailing all payments made to, and deductions collected from sub-contractors.
• You must submit a “nil return” even if no sub-contractors are paid.
• Provide a payment statement to the sub-contractor at least monthly.

The Risk of CIS Penalties

The current penalties for failure include:

• Failure to submit monthly return, (including a nil return) by the correct date, £100
• Monthly return is still outstanding after 2 months, an additional £200
• Monthly return outstanding after 3 months = additional £300 or 5% of the CIS deductions from the return (whichever is higher), and additional increases for returns that remain outstanding at 6 and 12 months.

Additionally, HMRC can levy up to £3,000 per monthly return submitted if you incorrectly tick the self-employed status declaration when your sub-contractors should have been employed.

The loss of Gross Payment Status can have a crippling effect on a company’s cashflow and result in:

• Up to 20% of a company’s earnings being held by HMRC.
• Deductions are held until the following financial year
• A significant drop in your credit rating
• A loss of company’s credibility and ability to trade

How could you lose Gross Payment Status?

Note that a business will fail the scheduled review if:

• any contractor returns have been late on four or more occasions;
• any one contractor return is over 28 days late;
• any PAYE or CIS payments have been late on four or more occasions;
• any one PAYE or CIS payment is more than 14 days late;
• any self-assessment payment is more than 28 days late;
• any Corporation Tax payment is more than 28 days late, or is outstanding at the date of the review;
• a P35 is still outstanding at the time of the review;
• any self-assessment return (income tax or Corporation Tax is outstanding at the time of the review; or
• any payment of £100 or more due to HMRC is outstanding at the time of the review.

The sheer volume of situations that could give rise to a “scheduled review failure” makes it easy for a business to put its gross payment status at risk – especially as the review process is largely automated. Four or more late contractor returns, for example, will trigger an automatic “ad hoc” review irrespective of when the next scheduled review is due to take place.