Late CIS, PAYE and VAT: which penalty clock applies?

Which obligation has actually been missed?

There are five checks, not one general late-tax calculation. The Construction Industry Scheme (CIS) covers reporting payments to construction subcontractors. Pay As You Earn (PAYE) covers payroll reporting and amounts paid to HMRC. Value Added Tax (VAT) has its own return and payment rules.

For a business with several companies or payroll schemes, use a separate line for each reference and period. A bank transfer labelled “HMRC” is not evidence that the right liability has been paid, just as a completed payroll run is not evidence that HMRC accepted the report. Reconcile the submission receipt, tax account and bank entry.

Our construction and CIS accounting service covers the recurring controls behind these checks. If the underlying problem is uncertain cash rather than missing reports, link the tax schedule to your monthly management accounts, so upcoming liabilities appear beside expected receipts.

How do late CIS returns and nil months work?

The standard CIS filing penalties increase while a return remains missing. HMRC expects the return by the nineteenth after the tax month, which runs from the sixth to the fifth. The usual sequence is £100 when late, another £200 at two months, then the greater of £300 or 5% of the deductions at six months and again at twelve months.

This illustration excludes deliberate withholding, where the twelve-month charge can be higher. It does not add an automatic fifth penalty of £3,000 after a year. HMRC's separate record-keeping penalties should not be folded into this standard filing timeline.

Mainstream contractors are construction businesses and property developers. Deemed contractors are other businesses or bodies brought into CIS because of their construction spending. From 6 April 2026, mainstream contractors with no subcontractor payments must file a nil return or notify inactivity by the nineteenth. Deemed contractors are different: there is no legal nil-return requirement, and HMRC should cancel an automatic penalty when told that no subcontractors were paid. Match an older period to the rules then in force, rather than applying the reinstated rule backwards. See HMRC CIS contractor guidance, sections 4.5 and 4.18.

Keep this separate from the question of CIS gross payment status. This guide deals with missed obligations and the next action, not a fresh application for that status.

Why must PAYE reporting and payment be checked separately?

A late payroll report is not the same as an unpaid payroll tax bill. An FPS is normally due on or before payday. Monthly reporting penalties are £100 for 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more.

HMRC's limited three-day allowance for reporting is not permission to report late routinely. Other exceptions include the first failure in the tax year, except annual schemes, and a new employer's first FPS sent within thirty days of first paying an employee. Check which exception actually applies, rather than assuming that every first notice is wrong. An EPS is needed where no employees were paid in a tax month.

A “specified charge” is HMRC's estimate where reporting is missing. Check the original submission history and follow the missing FPS or EPS route; adding later year-to-date figures alone does not remove that specified charge. HMRC payroll reporting penalties explains the reporting rules and appeals.

For monthly or quarterly PAYE payment penalties, the first late payment in the tax year is ignored in counting defaults. The counted defaults then set the rate: 1 to 3 means 1%, 4 to 6 means 2%, 7 to 9 means 3%, and 10 or more means 4%. Unpaid balances can attract an additional 5% at six months and another 5% at twelve months, even if only one payment was late. Interest is separate.

These payment rules also cover CIS deductions paid to HMRC. Annual or occasional liabilities can follow a different timetable, so do not use this monthly/quarterly table for every notice. Check HMRC PAYE payment penalties against the actual charge.

What changes between VAT filing, payment and interest?

A late VAT return can create a point even where nothing is payable or a repayment is due. For accounting periods starting on or after 1 January 2023, the usual thresholds are two points for annual returns, four for quarterly and five for monthly. Reaching the threshold brings a £200 penalty; each further late return while at the threshold brings another £200.

The first and final returns and certain one-off returns are excluded, and non-standard periods have specific rules. Check your actual period and point history against HMRC VAT submission points. Paying the tax does not submit the return or clear the points.

The following payment example uses the 3%, 3% and 10% regime. It applies to amounts due on or after 31 May 2025 unless the VAT accounting period began before 1 April 2025. Earlier cases use the relevant older rates, not this illustration.

Through day 15 there is no late-payment penalty. From day 16 the first penalty uses 3% of the amount outstanding at day 15. If payment remains outstanding beyond day 30, it also includes 3% of the day-30 balance. From day 31 a separate second penalty builds daily at 10% a year, through the payment day. A part-payment changes the relevant unpaid balances.

A Time to Pay proposal, meaning a request to pay in instalments, can affect the penalty timeline if HMRC subsequently agrees it and you keep to it. It is not enough simply to ask, and charges already incurred do not all disappear. The detailed calculation is in HMRC VAT payment penalty calculations.

Interest still applies. It runs from the first overdue day until full payment, including during agreed instalments. We have left interest outside the worked penalties because it is a separate calculation using the applicable rate over the relevant dates. See HMRC VAT interest guidance.

What could forty days late cost?

The same delay can produce different charges because the tests differ. These are separate illustrative cases, not a combined bill or a quotation. Assume a UK contractor with six employees, no deliberate withholding, no successful appeal, no special relief and no instalment agreement.

The VAT second penalty is £10,000 × 10% × 10 ÷ 365 = £27.40, rounded to the penny, because days 31 to 40 inclusive are ten days. This is why “6% once it passes thirty days” is incomplete. Keep the filing penalty, payment penalties, interest and original tax on different lines.

What should the finance team do next?

Build one dated arrears register and deal with filing and payment work in parallel. The most useful priority is the next avoidable charge or an expiring appeal deadline, not an automatic instruction to finish the oldest return before speaking to anyone about payment.

1. Confirm the starting position. Record the company, tax reference, period, due date, accepted submission receipt, amount due, amounts paid and HMRC allocation. Separate estimated charges from established liabilities.
2. Name the missing work. Give each return or correction a preparer, a reviewer and a completion date. Check existing reports before submitting again. Do not fill gaps with guessed payroll or subcontractor figures.
3. Mark the next change in cost. Record the relevant CIS milestone, VAT payment checkpoint or prolonged PAYE arrears date, with the working calculation. Record appeal deadlines from each notice separately.
4. Decide payment and contact actions today. Reconcile available cash with essential commitments and authorised payments. Contact HMRC promptly if instalments are needed; retain the proposal date, reference and agreed terms. Do not assume a request has been accepted.
5. Review disputed charges on evidence. Compare the notice with receipts, payment dates and the relevant exception. Follow its appeal instructions and retain evidence for any reasonable-excuse argument; cancellation is not guaranteed.
6. Close the control gap. Keep submission acceptance and payment confirmation as two separate sign-offs. Put the next period's deadlines into the monthly finance pack, with cover for the person normally responsible.

For example, if a bookkeeper can complete a missing report while a director authorises payment, there is no operational reason to make one wait for the other. A checklist only works when its entries show evidence of completion, rather than “sent to accountant” or “payment arranged”.

LOYALS Accountants & Business Consultants provides ongoing accounting support for established UK businesses. The aim is a reliable monthly process around your contracts, payroll and cash, with responsibility agreed in writing, not a promise that every penalty can be removed.