Failing to register as a subcontractor
As a CIS subcontractor, you need to register both for self assessment and as a subcontractor under the CIS scheme (see the previous section for details on how to do this).
If you do not register under CIS, the immediate consequence is a higher tax deduction rate of 30% (rather than 20%). But the trouble doesn’t stop there.
If you fail to register for CIS, tax returns will still need to be completed. Failure to submit tax returns can lead to fines and estimated tax bills.
Estimated bills, called ‘determinations’, can be enforced by HMRC – even if you have paid tax at source. To get credit for any tax deducted at source, you need to make a claim by filling in a tax return.
If a tax return is not submitted within 3 years from the 31 January filing date for that tax year, it may not be possible to change the estimated tax demand. The result could be lost refunds or even bankruptcy.
Gerard registers for self-assessment in June 2015. He is sent a tax return for the tax year 2015/16, but does not file it by the due date of 31 January 2017. From 1 February 2017, HMRC may raise a determination (an estimated tax bill). If HMRC does raise an estimated tax bill in February 2017, Gerard will need to file his 2015/16 tax return by 31 January 2020 (3 years from the filing date for the 2015-16 return of 31 January 2017) in order to displace the estimated bill.
If you have not registered for self assessment or CIS, then you are breaking the law. It is likely that HMRC will discover that you exist from the contractor’s monthly returns. The result could be significant tax bills and penalties. Furthermore, if your business records are poor and you have nothing to prove that 30% tax was deducted from your income, then large tax bills are likely. If you can’t pay the bills, bankruptcy is a possible outcome.
If you have registered for self assessment and for CIS, and you are still having 30% tax deducted from your income, you should contact HMRC at once to sort out the mistake.