The Construction Industry Scheme (CIS) plays a pivotal role in ensuring that contractors and subcontractors in the UK construction sector meet their tax obligations. Contractors are responsible for deducting money from subcontractors’ payments and passing it on to HMRC. These deductions count as advance payments toward the subcontractor’s tax and National Insurance liabilities. Given the complexity of managing multiple subcontractors, errors can sometimes occur in CIS filings, leading to potential penalties and financial complications. Correcting these errors promptly is crucial.

In this article, we’ll walk you through the most common CIS filing mistakes, how to identify them, and the steps you need to take to correct them.

Common CIS Filing Errors

CIS returns must be filed monthly, and even small errors can have significant consequences. Here are some of the most common CIS filing errors contractors may encounter:

  • Incorrect Unique Taxpayer Reference (UTR): Subcontractors are identified using their UTR. Filing with an incorrect UTR can lead to mismatches in HMRC’s system.
  • Incorrect deduction amounts: Deductions can vary (usually 20% for registered subcontractors and 30% for unregistered subcontractors). Failing to apply the correct percentage can result in under- or overpayment to HMRC.
  • Wrong subcontractor payment figures: Reporting incorrect payment amounts—either higher or lower than the actual amount—can cause discrepancies in both contractor and subcontractor records.
  • Misclassifying workers: Contractors must ensure that individuals being paid are classified correctly as subcontractors rather than employees. Misclassification can lead to incorrect deductions and potential penalties.
  • Filing under the wrong tax period: This is especially problematic when a contractor files multiple returns or misses a filing deadline, leading to confusion in payment schedules.
  • Failure to file returns on time: Missing a monthly CIS return can result in automatic penalties, which increase the longer the return remains outstanding.

Identifying CIS Filing Errors

Recognising errors early can save contractors time and money. Here’s how to identify potential CIS filing errors:

  • HMRC’s prompts and notifications: HMRC may notify you of inconsistencies between submitted returns and their records. This could come in the form of a letter or notice through the HMRC CIS online service.
  • Reviewing monthly CIS statements: Contractors should carefully review the monthly statements that they issue to subcontractors. These documents outline the amounts paid and deductions made. Cross-checking these statements against internal records can help identify discrepancies.
  • Cross-checking subcontractor payments and deductions: It is essential to maintain clear and up-to-date records of all payments made to subcontractors, ensuring that the correct deduction rates (20% or 30%) are applied.
  • The role of accountants: Engaging an accountant or tax advisor can significantly reduce the risk of errors in your CIS filings. Professional accountants can help implement systems that minimise the likelihood of mistakes and also identify errors early through regular reviews.

The Process of Correcting CIS Errors

If you’ve identified an error in a previously submitted CIS return, it’s crucial to take swift action to amend the return and avoid potential penalties. Here’s how you can correct your CIS filing errors:

1. Correcting via the CIS Online Service

The quickest way to correct a CIS return is through HMRC’s CIS Online Service. You can log in and amend the return that contains the error. If the mistake relates to a simple clerical error (e.g., incorrect payment amounts or UTRs), these can be adjusted directly through the online system.

2. Manual Corrections by Contacting HMRC

For more complex errors, such as misclassification of workers or significant under- or over-deductions, you may need to contact HMRC’s CIS helpline. You can reach out to the CIS helpline and provide details of the error. In some cases, HMRC may advise you to file an amended return manually or assist you in making the corrections.

3. Correcting Errors in the Next Return

Another method of correction is adjusting for the error in your next CIS return. For instance, if you over-deducted from a subcontractor in one month, you could reduce the deduction in the next month to balance the discrepancy.

4. Timelines for Correction

It’s important to make corrections as soon as possible. If you discover an error within the current tax year, the process is generally straightforward. However, if the error relates to a previous tax year, it can become more complicated and may require additional paperwork or communication with HMRC.

Correcting Deductions

Errors in CIS deductions can be particularly troublesome because they affect both contractors and subcontractors. If a contractor under-deducts, HMRC could hold them liable for the shortfall. On the other hand, over-deductions can cause subcontractors cash flow problems, as they may struggle to reclaim the overpaid tax until the year-end.

Steps to correct deduction errors:

  1. Review the error: Identify whether the error is an under- or over-deduction and how it occurred.
  2. Submit a correction through the CIS online system or adjust in the next return.
  3. Communicate with subcontractors: If deductions were incorrectly applied, it’s important to notify the subcontractor and issue an updated CIS statement to reflect the correct amounts.
  4. Claim back overpayments: Subcontractors who have been over-deducted can claim back the excess by filing a self-assessment tax return or applying for a repayment through their self-assessment.

Penalties for CIS Filing Errors

Mistakes in CIS returns can lead to penalties, particularly if they result in underpayments to HMRC or late filings. Here’s a breakdown of the penalty system:

  • Late filing penalties: Failing to submit your monthly CIS return on time will result in an automatic penalty. The penalty starts at £100 for a return up to one month late, rising the longer the return is overdue.
  • Incorrect deductions: If HMRC finds that you’ve under-deducted tax from your subcontractors, you may be held liable for the unpaid tax, plus interest and possible penalties.
  • Appealing penalties: If an error was made in good faith, you may be able to appeal the penalties. HMRC has a formal appeals process to review penalty cases.

How LT Accounting Can Help You Avoid and Correct CIS Filing Errors

At LT Accounting, we specialise in providing expert CIS management services, helping contractors and subcontractors stay compliant with HMRC requirements. We can assist with:

  • Accurate filing: Our team ensures that all CIS returns are submitted correctly and on time, minimising the risk of errors.
  • Review and correction: If errors do occur, we can help you navigate the correction process with HMRC, ensuring that amendments are made swiftly and efficiently.
  • Penalty mitigation: If you’ve been hit with penalties due to CIS errors, we can assist in the appeals process and negotiate with HMRC on your behalf.

Outsourcing your CIS obligations to professionals like LT Accounting can save time, reduce the risk of costly mistakes, and ensure peace of mind that your filings are in good hands.

Best Practices to Avoid CIS Filing Errors

The best way to deal with CIS filing errors is to avoid them altogether. Here are some best practices contractors can implement:

  • Use accounting software: Modern accounting software can help automate much of the CIS process, reducing the likelihood of human error.
  • Keep detailed records: Ensure that all subcontractor payments and deductions are clearly documented and easily accessible.
  • Monthly reviews: Before submitting each CIS return, review the figures carefully to ensure accuracy.
  • Train your team: If you have staff responsible for managing CIS filings, ensure they are up-to-date with the latest HMRC regulations and filing requirements.

FAQs on Correcting CIS Filing Errors

How long does it take to correct a CIS filing error?
The time it takes to correct a CIS error depends on the nature of the mistake. Minor errors can often be corrected quickly online, while more complex issues may take longer, particularly if HMRC intervention is required.

What happens if a subcontractor notices an error first?
If a subcontractor identifies an error, they should inform the contractor immediately. The contractor can then review the CIS statement and submit corrections to HMRC as necessary.

Can CIS errors affect my company’s cash flow?
Yes, especially if the errors involve incorrect deductions or payments. Over-deductions can leave subcontractors struggling to recover overpaid tax, while under-deductions may leave contractors owing HMRC.

What if I cannot pay penalties due to an error?
If you are unable to pay penalties, you should contact HMRC to discuss a payment plan. In some cases, penalties can be appealed if there are reasonable grounds for the error.

Conclusion

Correcting CIS filing errors is essential to avoid penalties and ensure smooth financial operations for both contractors and subcontractors. Taking a proactive approach to identify, correct, and prevent these errors can save significant time and costs in the long run.

For expert assistance with your CIS filings and other accounting needs, contact LT Accounting today. Our team is here to help you stay compliant and avoid the pitfalls of incorrect filings.