TT150: HMRC Get Tough On Late Payment Of PAYE/NIC

April 23, 2010

A new regime for penalising businesses for the late payment of monthly Pay As You Earn (“PAYE”), Class 1 National Insurance Contributions (“NICs”) student loan repayment and Construction Industry Tax (“CIS”) liabilities has been introduced from 6 April 2010.

The Current Position

Up to the tax year ended 5 April 2010, if an employer was late in the payment of PAYE & NICs then no interest or penalties would be suffered on the late monthly payments. The only charge would have been an interest charge at the current rate of 3% from 19 April, following the end of the tax year, on any outstanding balance as at that date.

The only exception to this situation was where larger employers were affected by the Mandatory Electronic Payment rules.

The New Penalty Regime

From 6 April 2010 penalties will now apply where PAYE and NICs are paid over late to HMRC. The new rules will apply to in-year payments due from 19 May 2010 onwards and Class 1A and 1B NICs (see below).

If too little tax etc. is deducted under PAYE, again a penalty may apply as full payment will not have been made by the due date.

How Much Will the Penalty Be? – Monthly and Quarterly Payments

For late monthly and quarterly payments, the penalty will start at 1 percent of the late amount and will increase to 4 percent depending on how many times a late payment is made. A penalty will not apply if only one payment is late in any tax year, unless the payment is more than six months late.

In summary the following table illustrates how the penalty will operate on monthly, quarterly payments:

 

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%

 

Monthly and Quarterly Payments More than Six Months Late

HMRC has stated that it may charge an additional penalty of 5 percent of the amount that is late on any monthly or quarterly payments more than six months late. HMRC may also charge a further penalty of 5 percent if payment has not been made after 12 months.

Annual Payments (for Example Class 1A NICs and with Respect to PAYE Settlement Agreements)

For 2010-2011 tax year, Class 1A NICs must be paid no later than 6 July 2011 and for Class 1B NICs must be paid no later than 19 October 2011.

HMRC state that they will charge up to three penalties of 5% of the amount that is late:

  • a 5% penalty if payment is not received within 30 days of the due date;
  • a further 5% penalty if payment is not made within six months after the due date;
  • a further 5% penalty if payment is not made within twelve months after the due date;

Penalty Notification

When an employer is to be charged a penalty, HMRC will send a letter informing the employer that a penalty is due, how much it is, when it has to be paid, and how to appeal.

HMRC advise that for the first year, it will charge the penalties after the end of the tax year (i.e. sending out the first penalty notices in April or May 2011). However, it is understood that warning letters will be sent out to employers during the year where monthly or quarterly payments are seen to be late or a payment has been made that appears to HMRC to be insufficient.

In respect of future years penalties will be imposed straight away once HMRC has evidence that there has been a late or insufficient payment. HMRC can charge penalties within two years of the due date for payment.

“Lack of Money”

HMRC has a Business Payment Support Service to deal with businesses that anticipate not being able to make payments. By agreement, payments can be spread over a longer period and HMRC will not then charge penalties on those payments covered by that agreement, providing the conditions of the agreement are met. However, HMRC agreement must be obtained before the payment becomes due.

It remains to be seen how HMRC will deploy its new powers on late payment. If the total payment due for one month is late, this would be visible to HMRC. It is less clear though how HMRC will be able to monitor cases where a monthly payment is made on time but is understated and the error corrected by over-paying the tax and NIC due in the next month although this may be picked up on a HMRC inspection of PAYE records.

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