From October 2011, the penalties for late or non-filing of a contractor's monthly return within the Construction Industry Scheme are changing.

The first return falling within the new penalty regime will be the return for the month ending 5 November 2011.

The following penalties will apply to that return and all subsequent months' returns that are not filed or filed late:

• A fixed penalty of £100 immediately a return is late.
• A second, fixed penalty of £200, two months after the filing date if the return is still outstanding.
• If the return is still outstanding six months after the issue of the first penalty, a tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return.
• If the return is still outstanding twelve months after the issue of the first penalty, a further tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return. Higher levels of penalty apply where, as a result of the failure to file the return on time, information has been deliberately withheld.

Interest will be chargeable on any penalty paid late.

In many cases, the new penalties will be less than what would be charged now. In particular, for new CIS contractors, there will be an upper limit to some of the penalties that are charged. This upper limit will apply when new contractors first send a monthly return, if that return and any other monthly returns that are sent at the same time, are late.

Although the new penalties do not start until October 2011, any contractor who has been, or is, charged penalties for filing a monthly return late before October 2011, may ask HMRC to:

• work out how much the penalties would be under the new rules, and, if less than the amount already charged
• agree that their penalties should be reduced to the lesser amount.

Please contact us for help if you have recently received a penalty.