PAYE – penalties for late payment – Frequently asked questions

When we say ‘PAYE due’ or ‘PAYE payments’ we mean the sums that employers and contractors must pay to HMRC under the PAYE system which may include:

Income Tax deducted from employees’ earnings
Class 1, Class 1A and 1B National Insurance contributions
Deductions made under the Construction Industry Scheme (CIS)
Student loan amounts deducted from earnings

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Who will the new rules apply to?

1. Who will the new rules apply to?

The new rules will apply to all employers and contractors who must make PAYE payments to HMRC.

2. I am a domestic employer with only one employee – (for example my nanny). Will I be exempt?

No. The new rules will apply to all employers. This means that you must pay the amounts due on time to avoid having to pay a penalty.

3. I receive Direct Payments, which I use to pay my carer. Will I be exempt?

No. The new rules will apply to all employers. This means that you must pay the amounts due on time to avoid having to pay a penalty.

4. I am a CIS contractor but not an employer – will the rules apply to me?

The new rules will apply to deductions due under the Construction Industry Scheme (CIS) in the same way as to Income Tax / National Insurance contribution payments.

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What will the new rules cover?

5. What will change?

the new penalties will apply to all employers and contractors who must make PAYE payments
for employers with over 250 employees;
- the penalties will replace the MEP surcharge
- the percentages that will be used to calculate the penalty will be different to those used to calculate surcharge; and
- will apply to the amount late each month, rather than the total tax due on the P35.
the suspension of penalties during a time to pay arrangement will be set out in legislation.

6. What payments will the new rules affect?

Amounts employers and contractors have to pay to HMRC made up of:

Income tax and Class 1 NICs collected via PAYE;
Class 1A NICs on benefits;
Class 1B NICs
Construction Industry Scheme deductions;
Student loan deductions.

7. What about secondary NICs?

The new rules will apply to both primary NICs (deducted from employees wages) and secondary NICs (due from employers)

8. What about Class 1A NICs on benefits?

The new rules will apply to late amounts Class 1A NICs. The payment dates for Class 1A NICs are on our website. For more information go to Class 1A NICs.

The rules for Class 1A NICs work independently from penalties relating to in-year PAYE payments because they are due annually. Answer 17(b) explains how the rules will work.

9. What about student loan deductions?

If you make student loan deductions from your employees’ wages you must pay the money to HMRC, who collect the repayments on behalf of the Department for Business, Innovation and Skills. You may have to pay a penalty if you do not pay on time.

10. What about CIS deductions?

The new rules will apply to late paid Construction Industry Scheme deductions. You may have to pay a penalty if you do not pay on time.

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When do the new rules start?

11. When will the new rules start?

We intend the new rules to apply to PAYE payments due for tax years 2010/11 onwards.

This means it will affect in year payments due from May 2010 onwards. The first Class 1A NICs payment that the new rules will apply to is the payment due in July 2011.

12. I owe PAYE payments due for tax years earlier than 2010/11 – will the new rules apply?

No. The existing rules will still apply to any payments that you should have made before 20th or 23rd April 2010 (or before July 2011 for Class 1A NICs).

(Under the existing rules you may have to pay a surcharge on those payments, if you are a large employer covered by the Mandatory Electronic Payment rules).

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When are my payments due?

13. When should I pay?

You can find out the dates you must pay the PAYE you owe by going to HMRC and in the ‘employers’ section click on ‘PAYE for employers’ and scroll down to ‘making PAYE/National Insurance payments’. Paying HMRC

14. Will the date I need to pay by change?

No.

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What about PAYE errors?

15. Will I get a penalty if I pay on time but too little by mistake (for example because better information is made available to my payroll department)?

You may have to pay a penalty if you do not pay what you owe in full by the due date, so it is important to get accurate information about what you owe in good time.

16. How do I correct PAYE errors?

You can find detailed guidance about how to correct PAYE mistakes by going to How to correct PAYE errors on HMRC’s website. For example, it tells you

what to do if you discover you have made a mistake when calculating, reporting and/or deducting PAYE tax and NICs from your employees
what to do if you deducted or entered the wrong amount during a previous tax year or the current tax year.
how to correct mistakes in your end of year returns.

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What are the rules for penalties?

17. How will the new penalties for late payment of in year PAYE work?

a) In year PAYE payments

From May 2010, you may have to pay a penalty if

more than one of the in year PAYE payments due is late in any tax year,

We will work out the penalties as a proportion of the amount that is late. The percentage which we use will get bigger depending on how often you are late.

any payment is very late.

You may have to pay a penalty of 5% of any amount that is late if you still have not paid after 6 months, and a further penalty of 5% if you still have not paid after 12 months

b) Class 1A and 1B NICs

You may have to pay a penalty of 5% of the amount that is late if you have not paid the full amount within 30 days of the day it is due.
You may have to pay a further penalty of 5% of any amount that is late if you still have not paid 6 months after the due date, and a further penalty of 5% if you still have not paid 12 months after the due date.

18. How much will the new penalties for in year late payment be ?

Unless you are over 6 months late with the in year payment, 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.

The table below shows how the 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%

19. What about in year payments over 6 months late or non-payment?

We have a range of ways to deal with non-payment, including taking enforcement action through the courts.

In addition, from May 2010, you may have to pay penalties of 5% of the late amount if

an in year payment is more than 6 months late; and
an in year payment is more than 12 months late

(see question 17b for Class 1A or 1B NICs payments over 6 months late)

20. Sometimes my payments are just a day or two late – will I be affected?

Yes, even if you are only little bit late you may have to pay a penalty.

But you don’t get a penalty if

You are only late once in the tax year (unless you are more than 6 months late); or
You have a reasonable excuse

21. What happens if I only missed one payment date in the tax year – will I be liable to pay a penalty?

No - unless that payment was more than 6 months late.

22. I am a member of a large group with several PAYE references. How will the penalties apply to me?

The rules will apply to each reference separately. So, if

you underpay or pay late on one reference, you may still have to pay a penalty for that reference even if you have overpaid on another
If you are only late once on each reference you will not get a penalty – unless you still have not paid within 6 months

23. I make multiple payments on my PAYE Reference. What if only one is late?

You may have to pay a penalty if you do not pay the PAYE due in full and on time. It is therefore important to make sure that all the payments forming part of the PAYE due each month reaches us on time.

24. What if there is a good reason why I could not pay on time?

You will not have to pay a penalty if we agree you have ‘a reasonable excuse’.

If we do not agree that you have a reasonable excuse, you can appeal.

25. What is a reasonable excuse?

A reasonable excuse will differ from person to person depending on their particular circumstances. It is likely to be something

unusual
that you could not reasonably have known would happen; and which
you could not do anything to prevent

If we agree that you have a reasonable excuse for not paying on time you are not liable to a penalty. If we do not agree you can appeal.

The law says that some things do not count as a reasonable excuse.

These are

inability to pay (unless this inability is attributable to events outside your control).
you have deliberately not paid; or you rely on someone else to make the payment for you (unless you took reasonable care to make sure the payment was made)

26. I make payments quarterly, how will the new penalty rules affect me?

The new penalty rules will apply to you if your quarterly payment is late.

27. What has happened to the Mandatory Electronic Payment (MEP) surcharge?

Large employers must continue to pay electronically, but the MEP surcharge will be replaced by the new penalties. We are currently considering what transitional rules might be needed. You will not have to pay a surcharge and a new penalty on the same payment.

28. I am a large employer do I still have to pay electronically?

Yes.

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Financial difficulties

29. My business is in temporary difficulty and I need more time to find the money – what should I do?

We expect employers to pay on time. If you are having difficulties you should ring the Business Payment Support Service on 0845 302 1435 as soon as possible. In certain circumstances, we may allow some extra time to pay.

You can find out more about the Business Payment Support Service by going to Business Payment Support on our website.

30. Will I still be charged penalties if you agree to allow me more time to pay?

We will not charge you more penalties for late payment of PAYE if we have agreed to give you extra time to pay (called a Time to Pay arrangement). This will apply from the date you approach HMRC about entering into an agreement, provided you keep to it or we agree to change it (you may still have to pay penalties relating to any late payments that occurred before you approached us). Any penalty that you do have to pay, may be included within the agreement.

31. What if I find I can’t stick to the Time to Pay arrangement and ask you to change it?

We will not charge you further late payment penalties if we agree to the arrangement being changed.

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What happens if I disagree?

32. What can I do if I disagree with the penalty?

You can appeal against the penalty in the same way as you would appeal against an assessment to tax if

you do not agree you are liable to the penalty
you disagree with the amount charged

You can also appeal if HMRC do not agree that you have a reasonable excuse.

If you appeal, you can have a review by someone within HMRC who was not involved in the original decision. For more information about appeals and reviews go to Appeals on our website.

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Other

33. Will you continue to issue P101 notices?

Yes, P101 notices are an important process that enables us to collect PAYE where an employer or contractor does not pay an amount due.

34. Will you remind me my payment is due? me?

No. It is your responsibility to make sure you pay on time.

35. I often pay roughly the right amount every month and then make end of year adjustments to make sure I am straight at the end of the tax year. Is this OK?

No, you may have to pay a penalty if you do not pay in full and on time during the year.

36. Why have penalties at all? Most employers and contractors pay on time already or are straight by the end of the year

When people don’t pay in full on time, they can gain a significant advantage over those who do. We expect that the penalties will encourage some of those who currently pay late to pay on time. And by charging penalties when people are late, we will help make sure that the people who do pay on time are not at a financial disadvantage.

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