Contractors face £5m CIS penalties

The taxman has warned that only six out of ten returns have been filed on time under the new tax regime for contractors and subcontractors.

With an estimated 150,000 contractors expected to be required to fill in monthly returns, and penalties running at a minimum rate of £100 per month, they could face a £5m bill when the penalty regime gets underway on 19 October.

‘Those that are late need to get it sorted now,’ said Peter Seedhouse of PricewaterhouseCoopers.

‘We think bigger contractors have got it sorted but smaller companies advised by accountants, we don’t believe they are getting it through.’

The new CIS scheme came into effect in April following delays to make sure that HM Revenue & Custom’s IT systems and business’ accounting systems were working correctly.

The penalty regime was held off for the first six months. Even if contractors have nil returns, under the new scheme they must notify the taxman.

‘Outstanding returns include any unsubmitted since the start of the new scheme in April 2007, including returns confirming no payments have been made for a given month,’ said HMRC CIS reform programme director Mark de Brunner in a letter to Accountancy Age this week. ‘Nil returns can be made very easily over the phone.’

De Brunner said the taxman was also contacting those who have failed to file on time to remind them of the importance of doing so to avoid a penalty.

‘It’s not too late for contractors to meet their filing obligations. But they must act now,’ de Brunner added.

The introduction of the new scheme has proved a controversial topic in recent years.
Despite delaying the introduction of the scheme from 2006 to 2007, advisers have
warned that the industry is unready for it.

A KPMG survey prior to the scheme’s introduction found many contractors were not ready for its implementation, and it would be more unwieldy than the old scheme.

The ICAEW said the scheme would cost businesses up to £280m to comply, ten times more than Treasury estimates.