CIS Penalties: Late Returns & Wrong Deductions (2026)
HMRC reinstated a much stricter CIS penalty regime from April 2026, and a lot of contractors haven’t caught up with what’s changed. A habit that used to be harmless u2014 simply not filing when you hadn’t paid any subcontractors that month u2014 can now trigger an automatic fine. This guide from Filing Accounts UK explains exactly what the penalties are, what changed in April 2026, and what happens if deductions are wrong, using only verified facts from HMRC’s compliance framework.
At Filing Accounts, we file monthly CIS returns for contractors so deadlines never get missed. See our guide on registering for CIS if you’re setting this up for the first time.
CIS Monthly Return Deadlines
Contractors must file a CIS return every tax month, reporting who they paid, how much, and what was deducted. The deadline is the 19th of the month following the end of each tax month, regardless of weekends or bank holidays u2014 HMRC must have received it by then. Payment of the deductions themselves is due slightly later: the 19th for postal payment, or the 22nd if paying electronically.
The Penalty Ladder
| How Late | Penalty |
|---|---|
| 1 day late | £100 (fixed, automatic) |
| 2 months late | Additional £200 (£300 total) |
| 6 months late | Additional £300, or 5% of the CIS deductions on the return, whichever is higher |
| 12 months late | A further penalty of up to £3,000, or 100% of the deductions in the most serious cases of deliberate withholding |
The £100 fixed penalty applies from the very first day the return is late u2014 there’s no grace period, and HMRC doesn’t wait to contact you before issuing it. Beyond 6 months late, HMRC can also charge daily penalties of £10 a day, for up to 90 days, though this is less commonly applied than the fixed and percentage-based penalties.
Penalties Stack Per Return, Not Per Contractor
This catches out a lot of contractors who fall behind: each monthly return is treated as a separate filing obligation. Miss three months in a row and you don’t get one penalty u2014 you get three separate £100 penalties, totalling £300, and each one continues climbing its own ladder the longer it stays unfiled. Falling behind by even a few months can add up far faster than most contractors expect.
What Changed in April 2026: Nil Returns Are No Longer Optional
Before April 2026, many contractors simply didn’t file anything in a month where they hadn’t paid any subcontractors u2014 in practice, HMRC often let this slide. That’s no longer the case. Since 6 April 2026, every contractor must account for every tax month in one of two ways:
- File a nil return confirming no subcontractor payments were made that month, or
- Submit an inactivity request in advance, telling HMRC ahead of time that you won’t be paying subcontractors for a specified period
Silence is no longer an option u2014 a month with no return and no inactivity request on file is now treated as a missed filing, triggering the same £100 penalty as any other late return. This single change has caught out a large number of otherwise compliant contractors who simply carried on with their old habits into the new tax year.
Late Payment Penalties and Interest Are Separate
Filing your return late and paying the deductions late are two different failures, and HMRC treats them separately. Even if you file on time, paying the CIS deductions themselves after the deadline attracts interest, charged from the day after the deadline until HMRC actually receives payment.
What Happens If Deductions Are Wrong?
Filing on time doesn’t help if the figures themselves are incorrect. Common ways this happens:
- Deducting the wrong rate u2014 for example, deducting 20% for a subcontractor who should have been verified at 30%, or applying a deduction at all to someone with gross payment status
- Skipping verification entirely u2014 every subcontractor must be verified with HMRC before their first payment, and failing to do so is a compliance failure in itself
- Misclassifying materials u2014 CIS deductions only apply to labour, not to the cost of materials genuinely incurred by the subcontractor, and getting this split wrong under- or over-deducts tax
If HMRC finds a contractor under-deducted tax because they didn’t take reasonable care u2014 for example, failing to verify a subcontractor properly u2014 the contractor can become liable for the shortfall themselves, on top of any penalties for the return being wrong.
Can You Appeal a CIS Penalty?
Yes u2014 you generally have 30 days from the penalty notice to appeal, either online or in writing. Appeals can’t be made by phone. A genuine “reasonable excuse” u2014 such as a serious illness or a system failure outside your control u2014 can succeed, but simply forgetting or being busy generally won’t.
How to Avoid CIS Penalties
- Set a reminder for the 14th of each month, giving yourself a buffer before the 19th deadline
- File the return and pay the deductions on the same day where possible, to avoid tracking two separate dates
- File a nil return or submit an inactivity request for any month with no subcontractor payments u2014 never just leave it blank
- Verify every subcontractor with HMRC before their first payment, every time
- Keep clear records separating labour from materials on subcontractor invoices
Frequently Asked Questions
What’s the penalty for a one-day-late CIS return?
£100, applied automatically from the first day it’s late, regardless of how minor the delay.
Do I still need to file if I didn’t pay any subcontractors that month?
Yes, since 6 April 2026. You must either file a nil return or submit an inactivity request in advance u2014 doing nothing is now treated as a missed filing.
Are penalties combined if I miss several months?
No u2014 each missed monthly return gets its own separate penalty, so falling behind by several months multiplies quickly.
What happens if I deduct the wrong CIS rate?
If HMRC finds this was due to a lack of reasonable care, such as not verifying a subcontractor, you can become liable for the shortfall yourself, alongside any penalties.
Can I appeal a CIS penalty?
Yes, within 30 days of the penalty notice, online or in writing, if you have a genuine reasonable excuse.
Avoid CIS Penalties — Talk to Filing Accounts UK
At Filing Accounts, we file monthly CIS returns for contractors, verify subcontractors correctly, and make sure nil returns and inactivity requests never get missed under the new 2026 rules.
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