What penalties apply to PAYE Real Time Information (RTI) reporting and payments?
This is a freeview 'At a glance' guide.
At a glance
Real-Time Information (RTI) penalties
RTI at a glance
Under RTI employers submit payroll information to HMRC in real-time. Employers who are using RTI are no longer required to submit paper PAYE forms.
1. End of year penalties
- Under RTI the employer files a Full Payment Submission (FPS) for the last payment of the tax year and there is no P35 or P14 to submit to HMRC. If the employer fails to report the end of year FPS there will be an end of year penalty. This should be notified by September following the tax year.
2. Penalties for inaccurate in-year RTI submissions
- Penalties under schedule 24 FA 2007 (errors and mistakes in tax returns) apply to returns filed from 2013-14.
3. Late payment of PAYE
- Late payment of PAYE penalties under schedule 56 FA 2009 continue to apply unchanged in RTI reporting.
- Concession for personal service companies making a deemed employment payment under IR35, see IR35 reporting concession.
4. Late submission of in-year returns
- The first late submission of the year is ignored unless the employer is registered with HMRC as an annual scheme. Late filing applies to FPS and Employer Payment Summary (EPS) reporting.
- An EPS return is still required by the 19th of each month if there is no pay to report in a period but you can tell HMRC up to a year in advance that you will not pay any employees. To do this, enter dates in the 'Period of inactivity' fields in your EPS.
RTI filing comprises various different electronic submissions at different times:
- A Full Payment Submission (FPS) is made on or before an employee is paid. This provides details of the employee, their pay and deductions. Employers and pension providers must submit an FPS 'on or before' they make a payment to an employee or pensioner. If they still have information to send after 5 April, they can send this on an FPS until 19 April, then on an Earlier Year Update (EYU) after that. New employers are allowed up to 30 days to file their first FPS.
- An Employer Payment Summary (EPS) is made each month, this shows any adjustments to what is paid to HMRC for SMP, SSP etc.
- Nothing to report returns, the EPS is also used to notify HMRC if no payments have been made in the month, when no payment is made, employers should submit the EPS by the 19th following the end of the tax month
- An Earlier Year Update (EYU) this is made following the end of the tax year in order to correct errors or make adjustments to information submitted in earlier years.
- Employee forms P60 and P11D employers must still provide employees with a P60 end of year summary by 31 May following the tax year and a P11D by 6 July following the tax year.
Software
HMRC provides very basic free software which can be used for up to ten employees. Most employers find it simpler to purchase their own RTI-enabled payroll software to generate their returns.
Planning point: HMRC 'accredits' software for RTI but as not all software has always been capable of making Earlier Year Updates it is advisable to check the limitations before purchase.
Penalties for inaccurate returns
- 2016-17 onwards and 2015-16: see table below for concessions.
- 2014-15 late filing penalties were phased in from the following dates for in-year returns.
- from 6 October 2014 for employers with 50 or more employees
- from 6 March 2015 for employers with fewer than 50 employees
- 2013-14 penalties may apply to in-year returns and the final FPS.
- 2012-13 penalties may be charged after the end of the tax year, based on the final FPS for the year.
Late payment penalties
Penalties under Sch 56 FA 2009 apply to employer payments of PAYE and NI whether paid monthly or quarterly.
Since April 2015 HMRC has applied automatic in-year penalties, subject to a tolerance of £100 (based on the difference between the employer's payment and what has been reported to HMRC). As calculation is automatic and based on the number of late payments the automatic system will adjust later penalties rather than recalculating the earlier months already passed, as under the current Sch 56 FA 2009 regime.
RTI penalties: historical transition rules
|
Penalties |
2016-17 onwards |
2015-16 |
2014-15 |
2013-14 |
2012-13 (RTI pilot participants) |
|
Late filing: of in-year Full Payment Submissions (FPS) and EPS |
All employers may be up to 3 days late in filing returns without penalty |
Relaxation in reporting for micro employers until April 2016. All employers may be up to 3 days late in filing returns without penalty. |
New penalty regime starts on 6 Oct 2014 for employers with 50+ employees. Exemption for small employers until 5 March 2015 The relaxation in reporting for micro employers until April 2016 is probably not for new employers from 6 April 2014 but guidance is unclear All employers may be up to 3 days late in filing returns without penalty Special rules apply in numerous situations (see the tables below) |
No penalty provided reporting of the final payment to the employee is made by 19 May following end of tax year |
No penalty provided reporting of the final payment to the employee is made by 19 May following end of tax year |
|
Late filing: final submission |
As 2014-15 |
As 2014-15 |
Penalty under schedule 55 FA 2009 As 2013-14 |
Penalty under schedule 55 FA 2009 £100 per 50 employees for each month deadline by 19 May 2014, however employers are unable to submit electronically using their own softward after 19 April. |
Penalty under schedule 55 FA 2009 £100 per 50 employees for each month |
|
Inaccurate returns |
As 2014-15 | As 2014-15 |
Sch 24 FA 2007 penalties as 2013-14 |
A penalty under Sch 24 FA 2007 applies to both in-year submissions and the final FPS of the year |
No penalty for in-year submissions, a penalty under Sch 24 FA 2007 will apply to the final FPS of the year |
|
Late payment of PAYE/NI |
As 2014-15 | As 2014-15 |
Penalties apply under the existing rules in Sch 56 FA 2009. Automatic in-year penalties apply from April 2015. Concession for IR35 companies. |
Penalties apply under the existing rules in Sch 56 FA 2009. Concession for IR35 companies. |
Penalties apply under the existing rules in Sch 56 FA 2009. Concession for IR35 companies. |
Special rules for late filing penalties
1. All returns may be up to 3 days late without penalty
HMRC announced the following changes on 17 February 2015:
- Anyone who has suffered a late filing penalty since 6 October 2014 and was 3 days late or less may appeal their penalty on the grounds that it was "not more than three days late".
- This measure was originally only to apply until April 2016.
- It was extended to April 2018 in September 2017 and to April 2019 in June 2018 and again in August 2019 and October 2020. HMRC's guidance now shows the easement as being available indefinitely.
- Employers who persistently file after the payment date but within 3 days may be contacted or considered for a penalty.
2. On or before reporting deadline: micro employers may file monthly
HMRC announced the following changes in August 2014:
- A temporary relaxation of reporting arrangements for micro employers (nine or fewer employees).
- Existing but not new employers could report PAYE information on or before the last payday in the month until 5 April 2016.
3. Small employers: up to 49 employees
- No late filing penalties until 5 March 2015 under New phased penalty provisions.
4. Extra days allowed for filing FPS after payday
One of the most confusing aspects of RTI is that employers are also given extra days to file returns in further special circumstances
- See table below
Micro-employers: up to 9 employees
- A temporary relaxation of reporting arrangements for micro employers (nine or fewer employees). HMRC announced in August 2014 that existing employers with nine or fewer employees, who needed more time to adapt, could report PAYE information on or before the last payday in the month until April 2016.
- This meant that micro employers who were still finding it difficult to report PAYE information on or before the date they paid their employees would have more time to adapt their arrangements so that their business was ready for full real-time reporting from April 2016.
- Existing employers with fewer than 10 employees, who took advantage of the temporary reporting relaxation, must have remembered to use late reporting code ‘E’.
- This arrangement does not apply to employees who commenced payrolls on or after 6 April 2014, however, they were covered by the late filing exemption for small employers which ran until 5 March 2015.
Special rules if an employer runs a FPS after payday
This is possibly the most confusing aspect of RTI. There are further special rules that apply if a FPS report is filed late as follows (this reproduces HMRC's table, see link below)
| Situation | When to report |
|---|---|
| You have a reasonable excuse, eg a serious or life-threatening illness | As soon as possible |
| Your employee doesn’t give you a P45 and is either paid less than £123 a week or has worked with you for less than a week | Within 7 days of paying your employee |
| Your employees’ payday is on a non-banking day, eg weekend or bank holiday | On the next banking day, but enter the regular payment date in the ‘payment date’ field and select ‘Reasonable excuse’ code G |
| You make an ad hoc payment outside of your regular payroll, for example, you’re told after you’ve sent your FPS about a new starter or a missed overtime payment. (Payments made regularly outside your normal payroll run are not ad hoc) |
In your next regular FPS or an additional FPS |
| You pay your employee an expense or benefit where you must pay National Insurance, but not Income Tax, through payroll. This depends on the benefit. | Within 14 days of the end of the tax month |
| You can’t calculate or report your employee’s pay in advance because it’s based on their work on the day, eg harvest workers paid based on how much they pick | Within 7 days of paying your employee |
| You make certain non-cash payments to your employee | As soon as possible within 14 days of the end of the tax month, or when you deduct tax and National Insurance (if earlier). For more complex situations (eg when exercising share options) it may be possible to report later, contact HMRC |
| You’re an existing small employer that HMRC have allowed to report monthly instead of the normal way | Until 2016, you could choose to report monthly, on or before the last payday in the tax month. There are different rules for what to report in your FPS |
| You’ve not received your employer PAYE reference yet | As soon as possible after you receive your employer PAYE reference: select ‘Late reporting reason’ code G |
| You are paying foreign tax on your employee’s behalf and it is taking longer than usual to calculate the PAYE and National Insurance contributions on that tax | As soon as possible and within 1 month of paying your employee: select ‘Late reporting reason’ code G |
Additional times when FPS may be filed late: HMRC also have a concession that allows new employers to file late returns in other circumstances:
- IR35 deemed payments, see IR35 reporting concession.
- New employers are allowed up to 30 days to file (see above),
- You are up to three days late (see above),
HMRC's instruction is:
- Put the reason for reporting after payday on your FPS.
- If HMRC disagrees or you don’t send an FPS, they may send you a late filing notice.
- You’ll only get one for the first late FPS you send each month.
- See HMRC Running payrolls: submitting FPS after payday
Late reporting reason
Notifying HMRC of a late reporting reason
If an FPS is submitted late the employer should complete a ‘Late reporting reason’ field in their payroll submission (your software should provide you with the different choices) as per this table.
| HMRC code | Situation | When to report |
|---|---|---|
| G | You have a reasonable excuse (see below) | As soon as possible |
| H | You correct an earlier payroll report by sending an extra FPS | Before your next regular FPS. Send by the 19th of the tax month after your original FPS for HMRC to show the correction in that month’s PAYE bill |
| F | You have an employee who’s either paid less than £123 a week or has worked with you for less than a week | Within 7 days of paying your employee |
| D | You pay your employee an expense or benefit where you must pay NICs, but not Income Tax, through payroll. | Within 14 days of the end of the tax month |
| F | You pay your employee based on their work on the day (eg harvest workers paid based on how much they pick) | Within 7 days of paying your employee |
| E | You’re an existing small employer with fewer than 10 employees, and following the August 2014 announcement you’re exempt from reporting every time you pay them (see above) (retired by HMRC from 6 April 2016) | On or before the last payday of the month |
| A | You’re an overseas employer paying an expat employee, or you pay them through a third party | By the 19th of the tax month after making the payment |
| B | You pay your employee in shares at less than market value | Usually by the 19th of the tax month of giving them the shares. Contact HMRC for complex situations |
| C | You make any other non-cash payment (eg vouchers or credit tokens) to your employee | By the 19th of the tax month after making the payment |
RTI late filing penalty rates on or after 6 April 2014
| No of employees | Monthly penalty |
| 1-9 | £100 |
| 10-49 | £200 |
| 50-249 | £300 |
| 250 + | £400 |
Additionally, there is a penalty of 5% of tax and NIC which should have been reported if you are more than 3 months late.
When penalties apply:
- The size of the penalty is based on the number of employees in the scheme.
- Filing defaults will apply each month and will depend on returns not being received.
- There will be one unpenalised default each year, with all subsequent defaults attracting a penalty.
- Penalties will be charged quarterly, subject to the usual Reasonable excuse and appeal provisions.
- An additional tax-geared penalty may be applied if a return is outstanding for three months or more.
- Regulations will be used to set the penalty rates, including any escalation in size for subsequent defaults.
- Penalties are per scheme; employers with more than one scheme can be charged penalties for each.
The main changes aim to ensure penalties are based on the number of late payments relating to each tax year. Penalites will be 'ring-fenced' so that if further defaults arise earlier penalties do not have to be recalculated. Changes will also permit a penalty to be amended once it has been issued, rather than it having to be withdrawn and reissued. The Government may use regulations to apply a relief from late payment penalties if the sums paid by the employer do not exactly match the figures shown as deducted on the RTI returns for the relevant period.
Legislation will amend the inaccuracy penalties. The assessment provision will be amended to allow a tax year to be treated as a tax period for the purposes of Schedule 24 to Finance Act 2007. This change will reduce the number of separate penalty assessments that have to be issued where errors are found.
Penalties are due within 30 days of the penalty notice.
Interest
From April 2014 HMRC will charge interest on any payments, including penalties, not made by the due date.
For 2013-14 interest was only charged if payment for the last month was not paid by the due date.
Tax-trap alert
HMRC says that it “will continue to use a risk-based approach to identify employers who are not complying with their payment obligations and who therefore might be liable to late payment penalties. Where employers who are not complying with their obligations are identified, late payment penalties may be charged.”
Employers are strongly not advised to trust that advice, because experience of the Schedule 56 penalty regime has shown that HMRC will charge a penalty unless a late payment agreement is in place before the payment is due.
HMRC says that it will notify employers who may have defaulted on either a filing or payment obligation "as soon as possible" to enable them to get back to compliance quickly and avoid any further penalties for future failures.
Note that if an employer is making a persistent mistake in the in-year RTI return so each one is incorrect this could result in HMRC sending a separate penalty notice for each mistake; that is a lot of paperwork and administration.
Appeals
- An employer may appeal against RTI penalties, subject to a 30 day time limit.
- Appeals may be online from January 2015 or on paper.
- Details of how to appeal are attached to penalty notices.
- You cannot appeal a general notification (GNS) message. However if you appeal online HMRC will inform you by GNS as to whether your appeal is successful.
Grounds for excuse include "reasonable excuse". HMRC provides the following list of what it considers as a reasonable excuse:
- data on the returns was incorrect
- death/bereavement
- filing expectation incorrect
- filed on time
- fire/flood/natural disaster
- ill health
- IT difficulty
- missed correction/easement
- no longer have any employees
- no payments to employees
- theft/crime
- other
Cases
In Quayviews Limited v HMRC [2022] TC08515, the First Tier Tribunal (FTT) quashed late filing penalties imposed on an employer who had submitted its RTI returns between two and five months early: it had a reasonable excuse for not submitting the returns 'on time'. HMRC has not advised that very early filing was not allowed and HMRC's software allowed it.
Useful guides on this topic
RTI: Real-Time Information for PAYE
What is RTI: Real-Time Information (RTI) reporting for PAYE? How does it work?
PAYE late payment penalties buster
What penalties apply to late payment of PAYE? What can you do to manage or reduce them?
How to appeal a tax penalty (subscriber version)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?
External links
- HMRC what payroll information to report
- HMRC Running payroll
- What happens if you don't report RTI on time
Are you enjoying our content?
Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.
Register with us now to receive our receive our FREE SME Topical Tax Update & newletter.