From 6 October 2011, CIS contractor monthly returns will be liable to a new penalty regime. The first return to attract a penalty under the new system will be the return due for the month ended 5 November 2011, which is due by 19 November 2011.

Penalties for late monthly returns from that date will be charged as follows:

·         First failure to submit on time - £100 fixed penalty.

·         If return is still outstanding 2 months after the due date – a further £200 penalty

·         If return is still outstanding 6 months after the due date – the greater of £300 or 5% of the tax outstanding.

·         If return is still outstanding 12 months after the due date, a further penalty depending on the taxpayer’s behaviour, which is a maximum of £3,000 or 100% of the tax.

·         Interest will be charged on any penalty paid late.

However, on a positive note for taxpayers, there have been two recent cases in which HMRC was admonished for using penalties to generate cash for the Exchequer. In these cases, which admittedly related to PAYE returns, not CIS, HMRC had delayed in issuing the first penalty notice. This meant that other penalties also became due without the taxpayer being aware that they were even in the penalty regime.

We will therefore hope that HMRC will at least do the decent thing in issuing the first penalty notice well before the 2 month deadline is reached. However, taxpayers cannot rely on this happening. It is therefore all the more important to keep on top of your monthly filings and make sure they are filed, and tax paid, on time.