CIS tax fine review imminent

The tax man is planning a major shake-up of fines for late submissions under the CIS scheme because hardly anybody is paying the current penalties.

Contract Journal understands that HM Revenue & Customs has decided to revamp the scheme because it has collected less than 10% of outstanding fines and the industry is being swamped with paperwork.

The Revenue has issued 1.7 million late payment penalty notices worth more than £170m since October 2007.

But only around £10m has found its way in to the public coffers because of the complicated fine structure that has bogged the whole system down with documentation.

Firms that submit their CIS tax returns late are automatically issued with a £100 fine, which increases in £100 increments depending on the number of subcontractors employed by the company.

Fines are automatically levied again for every further month the tax documents are delayed. By the twelfth month,12 separate penalties are generated and the roll-up effect can lead to 78 notices being issued in one year for one late submission.

Critics of the current scheme believe it is too bureaucratic and leads to too much paperwork in the system.

Under the proposed revisions, penalty notices will still be issued after the first month a late submission is detected. But after that further fines will only be issued after three, six and nine months.

The level of fines will also be geared to the level of tax declared late, rather than the size of the company.

Howard Royse, ICAEW Construction Industry representative and company secretary of DGT Structures, said: "This snowstorm of paper has helped neither the industry nor HMRC. Hopefully this change will enable it to direct its resources more effectively."

An HMRC spokesman said: "The Powers Review team is currently consulting on proposals to standardise penalties across all HMRC taxes and duties. CIS is included in that review."