If you work in construction, chances are you’ve come across the Construction Industry Scheme (CIS). It’s HMRC’s way of making sure tax and National Insurance contributions are collected fairly from subcontractors. 

Contractors and subcontractors have strict obligations under the scheme. From making deductions and submitting monthly returns to paying HMRC on time, there’s not much room for error. Falling behind on CIS payments can lead to a whole load of trouble, and it can snowball fast. 

CIS payment failures often stem from simple admin mistakes, poor record-keeping, cash flow problems or confusion about the rules. But whatever the reason, the consequences are serious and can hit both your wallet and your reputation hard. So let’s get stuck into what happens if you don’t pay CIS. 

What contractors must do under CIS

If you’re a contractor under CIS, you’ve got legal responsibilities to meet every month. Before you pay any subcontractor, you’ve got to check their status with HMRC. If they’re registered, you’ll deduct 20% from their labour payment. If not, that deduction jumps to 30%. 

These deductions don’t just disappear. You’re responsible for sending them to HMRC by the 22nd of each month, or the 19th if you pay by post. You also need to file a monthly return confirming what you paid, who you paid it to, and how much was deducted. Even if you didn’t use any subcontractors that month, you still have to send in a return showing that. 

Good record-keeping is key. You’re expected to keep detailed records of payments, deductions, verification checks and subcontractor contracts for at least three years. And don’t forget to issue payment and deduction statements to your subcontractors within 14 days of each tax month. 

Initial consequences of CIS non-payment

If you miss a deadline, HMRC won’t wait around. The first response is an automatic penalty: 

  • £100 if your monthly return is even one day late 
  • Another £200 if it’s still late after two months 
  • And after six months, a further penalty of £300 or 5% of what you owe, whichever is more 

Leave it 12 months, and you could face another penalty of the same amount again. That’s on top of daily fines of up to £100 a day, up to a maximum of £3,000. As you can see, it stacks up quickly. 

HMRC uses automated systems and cross-checks with other tax data to spot issues. If your returns don’t match what you’ve paid, or you don’t file anything at all, it’ll raise a red flag. Once you’re on their radar, they can move fast. 

Financial penalties for late or non-payment

Beyond the fixed penalties, there’s also interest to pay. HMRC charges interest on any late payments from the day they’re due. The rate usually sits around 2.75% to 3.25% above the Bank of England base rate. It might not sound like a lot, but it adds up over time. Especially if you fall behind on several months’ worth of payments. 

Mistakes and incorrect information can also cost you. If HMRC decides you’ve been careless, penalties can range from 15% to 100% of the unpaid tax, depending on whether it was a simple error or a deliberate attempt to avoid paying. 

Enforcement actions by HMRC

If you keep missing your CIS duties, HMRC will escalate things. They might start with a compliance check. This is essentially a tax investigation, where they dig into your payment records, returns and subcontractor data. 

If they find gaps, they can issue assessments for the missing tax and demand repayment. And if that doesn’t work, they’ve got the power to recover what’s owed using: 

  • Debt collection agencies 
  • Court orders 
  • Seized assets, including vehicles and equipment 
  • Winding-up petitions against your company 

In extreme cases, HMRC can even start criminal charges, especially if they believe there’s been deliberate fraud or tax evasion. 

Impact on your business reputation

Falling foul of CIS rules can do more than dent your bank balance. It can seriously damage your business credibility. Especially if you lose gross payment status. 

That status means you get paid in full, without deductions. But if HMRC decides you’re not playing by the rules, they’ll revoke it. That means 20% or 30% will be knocked off your income immediately, which can put a huge strain on your cash flow. 

And it doesn’t stop there. Main contractors and public sector clients often demand proof of tax compliance before they’ll work with you. One black mark on your record can mean missing out on future contracts. And when word gets around, as it often does in the construction industry, it can harm long-standing business relationships too. 

Legal consequences of persistent non-compliance

If HMRC believes your non-compliance is deliberate and ongoing, you could face criminal prosecution. This is serious stuff and can lead to unlimited fines, director disqualification and even prison time. 

Under the Fraud Act 2006 and the Criminal Finances Act 2017, companies and individuals can be prosecuted for knowingly facilitating tax evasion. HMRC’s Managing Serious Defaulters (MSD) programme means you could also face up to five years of enhanced scrutiny across all your tax affairs. 

And if you’re a company director, HMRC can hold you personally liable for unpaid CIS if they believe you were negligent or complicit. 

How does non-payment affect subcontractors?

If you’re a subcontractor, you might not be directly responsible for filing a CIS return, but you’re not immune to the fallout. 

If a contractor doesn’t make the correct deductions or fails to pass them to HMRC, it can mess up your own tax records as a subcontractor. That could mean unexpected tax bills or issues with future claims. 

Subcontractors have the right to report non-compliant contractors to HMRC. It’s a good idea to keep clear records of payments and deductions to protect yourself if you take on work as a subcontractor. Switching from PAYE to CIS can offer plenty of benefits, but only if you stay on the right side of the rules. 

Rectifying CIS payment issues

It’s not all doom and gloom. The good news is that if you’ve fallen behind, it’s hopefully not too late to fix things. 

Start by contacting HMRC. If you’ve got a genuine reason for missing a deadline, like illness or unforeseen circumstances, let them know. You may be able to reduce or avoid penalties. 

You can also correct errors in previous returns or request a ‘Time to Pay’ arrangement to settle your debt in instalments. These payment plans usually last 6-12 months, but longer options can be agreed in some cases. 

Preventing future CIS problems

Like with lots of things, prevention’s better than cure when it comes to CIS. Start by keeping good records, which you can upload to your MyRIFT account when you join us, so everything’s safe, secure and easy to access when you need it. 

Use digital tools to handle CIS deductions and returns automatically. Plenty of accounting platforms offer CIS support now, and some link directly with HMRC. 

Lastly, never be afraid to ask for help. Here at RIFT, we specialise in CIS tax rebates. We can help you to stay compliant, up-to-date and out of trouble, so you can focus on the job. 

Stay on top of CIS and protect your business

CIS non-payment can cause a domino effect of penalties, legal threats and lost opportunities. But with the right support, it’s easy to stay ahead of it all. 

Whether you’re just starting out or trying to sort out a past issue, we’ve got your back. Our CIS tax rebate calculator shows what you could claim back, and our expert team can manage your returns, refunds and compliance from start to finish. Get in touch and let’s get the ball rolling.