How does the CIS monthly return work and what are the penalties for late filing?

Full answer

The Construction Industry Scheme (CIS) monthly return (CIS300) is a mandatory report that all contractors registered under CIS must submit to HMRC each month. It is separate from the contractor's own income tax or corporation tax return. What the CIS300 must contain For each subcontractor paid in the tax month (6th to 5th), the return must show: -- The contractor's UTR -- Each subcontractor's name and UTR (or company registration number) -- Verification reference number (obtained when the subcontractor was verified with HMRC) -- Total gross payment (including materials) -- Materials costs (excluded from the deduction calculation) -- Net deduction withheld (20% or 30% of the labour element) Nil return requirement If a contractor did not pay any subcontractors in a tax month, a nil return must still be filed by the 19th. Failure to file a nil return attracts the same penalties as failure to file a payment return. Filing deadline The CIS300 must be submitted by the 19th of the month following the end of the tax month. For example, the return covering 6 May to 5 June must be submitted by 19 June. Online submission is strongly recommended; paper filing must also arrive by the 19th. Penalties for late filing -- Filed 1 day late: GBP 100 fixed penalty -- Filed more than 2 months late: additional GBP 200 -- Filed more than 6 months late: GBP 300 or 5% of the CIS deductions due (whichever is greater) -- Filed more than 12 months late: a further GBP 300 or 5% of deductions (whichever is greater) Maximum penalties: if returns are filed 12+ months late, total penalties can reach GBP 900 or 10% of the deductions due. Where returns are deliberately not filed, the penalty can equal 100% of the CIS deductions that should have been reported -- potentially running to thousands of pounds. How subcontractors use CIS deductions Subcontractors who have had CIS deductions withheld can offset those deductions against their own tax and NI liability. Sole trader subcontractors offset through the Self Assessment return. Limited company subcontractors offset deductions against the corporation tax, employer PAYE and NI payable for the year. If deductions exceed the total liability, HMRC issues a refund. Gross payment status planning Subcontractors who regularly have large CIS deductions withheld should consider applying for gross payment status if their business meets the turnover and compliance criteria (individual: GBP 30,000/year; partnership or company: GBP 100,000/year combined). Gross status eliminates the cash-flow disadvantage of deductions being withheld.

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