CIS Penalties: What Happens If You Get It Wrong

CIS Compliance Matters

HMRC takes CIS compliance seriously. The scheme handles billions of pounds in construction payments each year, and HMRC actively monitors contractors and subcontractors to ensure the rules are followed. Getting it wrong does not just create administrative headaches — it costs real money in penalties.

Whether you are a contractor who files late returns or a subcontractor who has not registered, understanding the penalties helps you avoid them.

Penalties for Contractors

Late Monthly Returns

The most common penalty contractors face is for late filing of monthly CIS returns. These penalties are automatic — HMRC does not send a warning first.

| How Late | Penalty | |----------|---------| | 1 day | £100 | | 2 months | Additional £200 | | 6 months | Additional £300 or 5% of CIS deductions (whichever is greater) | | 12 months | Additional £300 or 5% of CIS deductions (whichever is greater) |

These penalties apply to each late return individually. If you miss three monthly returns, you face three separate sets of penalties.

For a contractor making £10,000 per month in CIS deductions who files six months late on a single return, the penalties would be: £100 + £200 + £500 (5% of £10,000) = £800. And that is just one return.

Late Payment of Deductions

Contractors must pay CIS deductions to HMRC by the 19th of the following month (22nd if paying electronically). Late payment incurs interest and potential penalties:

• Interest is charged from the due date until payment is received
• Repeated late payments may result in a surcharge

Incorrect Returns

If a CIS return contains errors, HMRC may impose penalties based on:

• The amount of tax at stake — the difference between what was reported and what should have been
• The nature of the error — careless errors attract lower penalties than deliberate ones
• Whether you disclosed the error — voluntary disclosure reduces penalties

Penalty ranges for inaccurate returns:

• Careless error: 0-30% of the tax at stake
• Deliberate error: 20-70%
• Deliberate and concealed: 30-100%

Failure to Verify Subcontractors

While there is no specific penalty for failing to verify, if you apply the wrong deduction rate as a result, you become liable for the underpaid amount. HMRC can pursue you for the difference between what was deducted and what should have been deducted.

Not Operating CIS When Required

If you should be operating CIS (because you are paying subcontractors for construction work) but are not, HMRC can:

• Register you as a contractor retrospectively
• Charge you for all the deductions you should have made
• Apply penalties for late filing and late payment on all retrospective returns

Penalties for Subcontractors

Not Registering

There is no specific penalty for not registering as a subcontractor, but the consequence is severe: you suffer 30% deductions instead of 20%. On £50,000 of annual labour income, that is an extra £5,000 deducted from your payments.

While you can reclaim the excess through Self Assessment, the cash flow impact is significant. Register for CIS as soon as possible to reduce your deduction rate to 20%.

Incorrect Self Assessment

If you file an incorrect Self Assessment that understates your CIS income or overstates your deductions, standard inaccuracy penalties apply:

• Careless: 0-30% of extra tax due
• Deliberate: 20-70%
• Deliberate and concealed: 30-100%

Not Filing Self Assessment

If you are self-employed and do not file a Self Assessment return at all, you face:

• £100 immediate penalty
• Daily penalties of £10 per day (up to 90 days) after 3 months
• Further penalties after 6 and 12 months

You also lose the opportunity to reclaim your CIS deductions, which may mean you have effectively overpaid your tax permanently.

How to Avoid CIS Penalties

1. Set Up Calendar Reminders

Mark the 19th of every month for CIS return filing and payment. Set reminders a week in advance to give yourself time to prepare.

2. File Nil Returns

If you had no subcontractor payments in a month, submit a nil return. The penalty for a late nil return is the same as for a late standard return.

3. Verify Every Subcontractor

Before making a first payment to any subcontractor, verify them with HMRC. Keep records of the verification result and reference number.

4. Use Accounting Software

Software that tracks CIS payments, calculates deductions, and reminds you of deadlines significantly reduces the risk of errors and late filing.

5. Check Your Details with HMRC

Ensure your own business details are correct with HMRC. Incorrect contact details mean you may miss important correspondence about penalties or compliance issues.

Appealing a CIS Penalty

If you receive a penalty you believe is unfair, you can appeal. You must appeal within 30 days of the penalty notice. Grounds for appeal include:

• Reasonable excuse — a genuine and unexpected event that prevented you from meeting the deadline (serious illness, bereavement, computer failure, fire or flood)
• HMRC error — HMRC's system was unavailable, or they failed to process something correctly
• First offence — HMRC may waive a first-time late filing penalty if you have an otherwise clean record

A reasonable excuse must be genuinely beyond your control. Being too busy, forgetting, or not knowing about the obligation are not reasonable excuses.

How Accounted Helps You Stay Penalty-Free

Accounted is designed to keep you compliant:

• Automatic deadline tracking — Penny monitors all CIS deadlines and sends reminders
• Payment records — every subcontractor payment is tracked with correct deductions
• Return preparation — your monthly CIS data is ready to submit
• Compliance dashboard — see your CIS status at a glance

Explore our pricing and choose the plan that keeps you penalty-free.

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Prevention costs less than penalties. Sign up for Accounted and let Penny ensure your CIS compliance is always on track.