What are the penalties for a late CIS tax return?

It’s always best to submit your tax return before the deadline but sometimes this isn’t possible for lot’s of different reasons.

Understanding what the penalties are for submitting your return late is important to avoid them increasing unnecessarily.

HMRC will automatically penalise you if your CIS tax return is submitted after the deadline.

• After one day of being late you will be sent a £100 penalty with that doubling at two months late.
• From three months late (in addition to the previous penalties) a daily penalty £10 per day for up to 90 days is issued up to a maximum of £900.
• At 6 months and then 12 months late there is a further penalty of £300 or 5% of the tax due if that is higher.

You can estimate your self assessment penalties by using HMRC’s estimate your penalty online tool.

Our guide to penalties for CIS subcontractors covers when you receive them, how much they are and how to appeal when you have a reasonable excuse.

Can I appeal against any late CIS tax return penalties?

You are entitled to make a self assessment late penalty appeal. For an appeal to be acceptable by HMRC you will need a reasonable excuse for example illness.

It can take many weeks for an appeal to be reviewed and you may have to reply to HMRC questions as part of the process.

An appeal can only be made after your CIS tax return is submitted to and logged as received by HMRC.

Any CIS tax rebate you are owed will usually be used to pay back any late penalties.

If there is any tax owed back to you after the late penalties have been paid this will then be refunded to you.

If you have already paid late penalties and your late penalty appeal is successful the money already paid to HMRC will be refunded after the late penalty appeal is completed.

CIS tax return penalties under making tax digital

HMRC issues late filing and payment penalties differently under making tax digital. Points accumulate independently for VAT (if you are registered) and income tax.

Most CIS subcontractors will need to file quarterly submissions and an annual submission.

One point is issued to a taxpayer when they fail to meet a tax submission deadline.

When a taxpayer reaches specific points thresholds based on their submission schedule, a £200 penalty is imposed:

• Annual submissions: Two points.
• Quarterly submissions: Four points.
• Monthly submissions: Five points.

Points expire after 24 months if the taxpayer stays below the threshold level.

Once a points threshold is reached, all points will be cleared after the taxpayer fulfils their return obligations for a specified period according to their submission pattern:

• Annual submission: 24 months.
• Quarterly submissions: 12 months.
• Monthly submission: Six months.

Additionally, all returns due within the previous 24 months must be received by HMRC.

If a taxpayer continues to miss submission deadlines after reaching the points threshold and receiving a penalty, they will face additional fixed penalties for each subsequent missed obligation.

Taxpayers have the right to make an appeal against both points and penalties. Points and penalties will not be applied where the taxpayer has a reasonable excuse for missing the submission deadline.

Late payment penalties under making tax digital

An initial late payment penalty becomes due 30 days after the payment deadline, calculated as a percentage of the outstanding amount.

• No penalty applies if payment is made within 15 days of the due date.
• A 3% penalty applies to tax unpaid after day 15.
• The penalty rises to 6% if tax remains unpaid by day 30.
• Beginning day 31, a second late payment penalty is levied at 10% annually, calculated daily on outstanding amounts.

Penalty accrual can be stopped when a Time To Pay arrangement has been agreed with HMRC.

Taxpayers maintain the right to appeal against penalties. Penalties are waived if you submit an appeal and have what HMRC deems a reasonable excuse for late payment.

Frequently Asked Questions about CIS Tax Returns

Our subcontractor tax FAQ’s give some basic guidance to help you avoid late filing and payment penalties.

How should I organise my expense receipts for my CIS tax return?
Proper expense documentation is crucial for maximising your legitimate CIS refund and completing your tax return correctly.

Keep all original receipts for business-related purchases, including tools, equipment, protective clothing, and travel costs.

Bank statements showing these transactions provide additional verification. For vehicle expenses, maintain a detailed mileage log with dates, destinations, and business purposes.

Digital copies are recommended and compulsory under making tax digital. Ensure they’re clear and legible and the software you use is compatible with HMRC’s making tax digital criteria.

Remember, thorough expense records can significantly reduce your tax liability.

What income information must I include in my CIS return?
Your CIS refund claim must include every source of income you received during the tax year.

This encompasses all payments from CIS contractors, any PAYE employment income, benefits received, and income from other sources like rental properties or investments.

Each income source requires supporting documentation – CIS statements for contractor payments, P60s for PAYE work, and official correspondence for benefits.

Omitting any income source, even accidentally, can lead to investigations and penalties.

How long should I keep my CIS tax return records?
HMRC requires you to retain all tax-related records for a minimum of five years after the submission deadline for your tax return.

This includes all receipts, bank statements, CIS statements, and correspondence.

Whether you keep physical copies or digital versions doesn’t matter, but ensure digital records are backed up and easily accessible.

Good record-keeping practices not only ensure compliance but also make future tax returns much simpler to complete.

Can I use digital receipts and electronic records for my CIS return?
Yes, HMRC fully accepts digital receipts and electronic records for CIS tax refund claims, provided they contain all necessary information and remain clearly readable.

For making tax digital the digital records must be stored in software that has been approved by HMRC.

Many contractors now use smartphone apps to photograph receipts immediately after purchase, ensuring nothing gets lost.

Electronic bank statements, digital CIS statements, and scanned documents are all acceptable.

However, ensure you have reliable backup systems in place, as you’ll need to produce these records if HMRC requests them during their five-year retention period.