Print

This is a freeview 'At a glance' guide to penalties for late paid PAYE and NIC.

What should the employer consider in handling late payment issues under PAYE? How are they calculated and how can you appeal?

At a glance

At a glance

The penalty regime for late paid PAYE and NICs is under Schedule 56 of the 2009 Finance Act. This applies since 6 April 2010.

This new regime applies to:

Penalties are charged according to whether the payment is due monthly, quarterly or annually. Payments made for tax years up to 2009-10 and made later than April 2010 are under the different rules.

Administering penalties

Larger employers

Smaller employers

Automatic late payment penalties did not apply for 2014-15, however, HMRC would assess Sch 56 penalties in cases where employers are consistently late in making payment.

All employers

HMRC can only notify a late payment penalty charge after the end of the year when a reconciliation is made.

Practical considerations for employers: mitigation and management

Unfairness: HMRC often delays sending out penalty notices

Setting up systems

Trading whilst insolvent

Ceasing trading or due diligence

Issues for advisers

Reduction by HMRC

HMRC may reduce a PAYE late payment penalty because of special circumstances.

Special circumstances do not include:

  1. Ability to pay.
  2. The fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.

There may well be a reasonable excuse for not having the ability to pay on time; failure of a major customer, bank lending etc.

The reference to reducing a penalty includes a reference to:

  1. Staying a penalty.
  2. Agreeing a compromise in relation to proceedings for a penalty.

Appeal

An employer may appeal a penalty if it has a reasonable excuse for making a late payment.

See Appeal: grounds for appeal

 

Overview

PAYE and NICs penalties

How they are calculated

The amount of penalty depends on whether payment is due on a monthly or quarterly basis, or annually.

1% to 4% monthly and quarterly payments

For late monthly and quarterly payments the penalty will start at 1% of the late amount and will increase to 4% depending on how many more times a payment for a period is made late. There will be no penalty if only one payment is late in any tax year unless the payment is more than six months late.

Unless a payment is more than six months late, the amount of the penalty will depend on two things: how much is late and how many times payments are late in a tax year.

Due dates

The table below shows how the monthly and quarterly penalties will be calculated:

No of times payments are late in a tax year

Penalty percentage

Amount to which penalty percentages apply

1

No penalty

Total amount that is late in the tax year (ignoring the first late payment in that tax year).

2-4

1%

5-7

2%

8-10

3%

11 or more

4%

 

5% monthly and quarterly amounts more than six months late

HMRC may charge penalties of 5% of the amount that is late on any monthly or quarterly payments:

5% Annual payments (for example Class 1A NICs and PAYE Settlement Agreements)

% total penalty by time of payment 

When paid

0% 1 - 29 days of due date

5%

 

30 days of due date

10%

 

6 months of due date 

15%

 

12 months of due date 


Interest on late payment

Example

JKL Ltd employs 40 employees, its payments to HMRC amount to £34,000 per month.

Its payments for April and May 2019 were on time, June was one day late and the payments for July to December were one or two days late.

The delay was caused by a new member of staff who did not understand the significance of the different payment dates.

Penalties due

Month

PAYE/NICs

Penalty Total
June

£34,000

-

-

July, Aug, Sept

£34,000 x 3

1%

£1,020

Oct, Nov, Dec

Recalculation of July to Sept

£34,000 x 3

£34,000 x 3

2%

1%

£2,040

£1,020

Total     £4,080


Note that the additional recalculation of the first penalty. It increases each time by 1% and so seems controversial. This appears to extend these penalties in a way not envisaged in HMRC's Powers consultation which seems unfair to those caught out.

Appeals

Can I appeal against a penalty?

See Appeal: grounds for appeal for a review of what the Tribunals consider is reasonable as an excuse.

Penalties are automatic and computer generated but an employer may appeal if it has a Reasonable excuse for making a late payment.

A taxpayer may also appeal on grounds that the penalty is disproportionate to the offence.

HMRC's powers to reduce a penalty

If HMRC think it right because of special circumstances, they may reduce a penalty.

'Special circumstances' do not include:

  1. Ability to pay.
  2. The fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.

The reference to reducing a penalty includes a reference to:

  1. Staying a penalty.
  2. Agreeing a compromise in relation to proceedings for a penalty.

The Tribunal's powers

The Tribunal may confirm or cancel a penalty, or substitute for HMRC’s decision another decision if HMRC had the power to make it.

The Tribunal should also consider whether HMRC have Erred on a point of law.

What if I cannot pay?

Contact HMRC's Business Payment Support Service to make a Time to Pay Agreement (TTPA).

 


Small acorn
If you like our content come and join us.

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 unique FREE Tax Planning Tips and Advice Guide & our FREE OMB Newsletter.