Following on from yesterday’s post, where we saw how a lack of real-time accounting could cost a business owner £20,000 in VAT, today we’re looking at another costly mistake—this time, it’s CIS.
Same business scenario, same financials:
📌 Financial Year-End: February 2024
📌 Turnover: £240,000
📌 Subcontractor Costs: £50,000
📌 Profit: £80,000
📌 Clients: Non-VAT registered households
📌 Profit Extraction: £12,570 PAYE, the rest as dividends
You’ve withdrawn the £80,000 profit, your company accounts deadline is 30th November 2024, and you’ve been working with a cheap accountant.
The Problem: CIS Has Been Overlooked
Your accountant finally gets in touch in May 2024 to start your accounts, and now they’ve spotted a major issue…
You’ve been using subcontractors.
When you first set up the business, you thought you’d be working alone, so CIS (Construction Industry Scheme) wasn’t even on your radar.
But business took off, and before you knew it, you had a few regular subbies helping you out.
The problem? You didn’t register for CIS, and you didn’t deduct CIS tax from their payments.
Now, HMRC are investigating your subcontractors because their tax returns show no CIS deductions, and they’ve flagged it with you.
The Financial Hit: CIS Penalties & Backdated Tax
Now you’re on HMRC’s radar, and here’s what you owe:
🚨 Late CIS Filing Penalties – £100 per month for each missing submission = £1,500 (minimum)
🚨 CIS Deductions You Should Have Made – £10,000 (20% of £50,000)
🚨 Or Even Worse… – If your subcontractors weren’t CIS registered, you should have deducted 30% instead = £15,000
You try to recoup the £10,000-£15,000 from your subcontractors, but they’re not interested. They’ve already spent their income, expecting HMRC to handle their refunds. The liability is now yours.
Total additional costs:
💥 VAT mistake: £20,000
💥 CIS mistake: £11,500 – £16,500
💥 Plus interest!
And let’s not forget—this could affect your ability to apply for CIS gross payment status in the future, making cash flow even tougher.
Why Did This Happen?
Once again, the accountant didn’t do anything wrong—they simply spotted the issue too late.
You assumed all accountants provide the same level of service. Now you’re learning the hard way.
And if you think this is where the costs end, you’d be wrong. There are still corporation tax and personal tax issues—which I’ll cover in my next post.
How We Do Things Differently
Our clients would never face this problem because we:
✅ Track VAT thresholds in real-time – so you never miss registration deadlines
✅ Run quarterly tax estimates – so you know your liabilities in advance
✅ Ensure compliance with CIS from day one – so you don’t get caught out later
Had this client worked with us, we’d have flagged the issue in Q1, registered them correctly, and avoided HMRC’s inquiry altogether—saving them money and stress.
Don’t Learn the Hard Way – Get a Proactive Accountant
If you’re only speaking to your accountant once a year, you’re exposing yourself to huge financial risks. Real-time financial management isn’t an expense—it’s an investment in your profitability, compliance, and peace of mind.
If this post hits home, let’s talk—before HMRC does.
