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  • PAYE/National Insurance late payment penalties

PAYE/National Insurance late payment penalties

This guide tells you about the late payment penalties which apply for all employers and contractors.

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Important update

Having listened to customer feedback, HM Revenue & Customs (HMRC) is staggering the start of the new automatic in-year late payment and filing penalties. This will give HMRC and employers more time to adapt to reporting in real time. For more information, please see the later section in this guide 'Notification of a late payment penalty'.

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PAYE/NICs payment deadlines

For information on PAYE/National Insurance contributions (NICs) payment deadlines (including student loan deductions, Construction Industry Scheme (CIS), Class 1A NICs and PAYE Settlement Agreement payments) - and the interest charges you will face if you miss them, follow the link below.

PAYE/National Insurance payments and deadlines

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Who and what late payment penalties apply to

The late payment penalties apply to all employers and contractors - whether you employ one or several hundred employees or subcontractors. They apply to monthly, quarterly and annual periods of PAYE starting on or after 6 April 2010.

HMRC charges late payment penalties on PAYE amounts that are not paid in full and on time.

These include:

  • monthly, quarterly or annual PAYE
  • student loan deductions
  • CIS deductions
  • Class 1 NICs
  • annual payments of employers' Class 1A and Class 1B NICs
  • determinations made by HMRC where it appears that there may be further tax payable
  • decisions, for example about a person's liability to pay NICs and the amount payable

For information about a payment surcharge that applied to large employers before 6 April 2010 see 'Mandatory Electronic Payment - Surcharge for periods before 6 April 2010' - there's a link at the end of this guide.

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Late payment penalty warning letters

HMRC may send you warning letters, to let you know that they think you have made a PAYE payment late and that a penalty could be charged. They may do this the first time in the tax year they think your PAYE payment is late. From tax year 2012-13 onwards a further warning letter may be sent after the second time payment is late. These letters are issued about two weeks after the payment due dates.

The letters also:

  • explain how to avoid or minimise penalties in the future
  • remind you to pay - if you have not already paid by the time you receive the letters
  • give advice on what you should do if you are having payment difficulties

They are not penalty notices and you can't appeal against them.

Importantly, warning letters do not mean that a penalty will definitely be charged.

You may also get an online generic notification notice if you're late making payments to HMRC. You can find out more about these notices in the guide 'Using HMRC's Online Service - PAYE for employers'.

Using HMRC's Online Service - PAYE for employers

From April 2014, HMRC will only send one warning letter; the first time in the tax year they think your PAYE payment is late. Although you may receive an online generic notification notice every time they think you are making payments late.

No PAYE/NICs to pay - how to avoid warning letters and payment reminders

If you have no PAYE/NICs payment to make for a month or quarter, you can avoid an unnecessary warning letter or payment reminder by simply telling HMRC on or before your normal payment date that no payment is due - in most cases you'll do this using an Employer Payment Summary (EPS).

What to do if you get a warning letter

If you agree that you have made a late payment, you should make sure you pay on time and in full in future. As late payment penalties are charged on an escalating scale, making payments in full and on time will reduce the amount of any potential penalty - see 'Penalty rates and how they will apply'.

If you are having payment difficulties you should follow the guidance in the letter or refer to the section in this guide 'What to do if you can't pay'.

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Notification of a late payment penalty

If a penalty is charged, HMRC will send you a late payment penalty notice telling you how much you owe and when you have to pay it by. It will also tell you what to do if you think the penalty is wrong.

It is your responsibility to make sure that you pay on time. HMRC does not issue reminder letters for PAYE before the due date.

From April 2014, HMRC will continue to issue late payment penalties on a risk-assessed basis for 2014-15 as in previous years. Penalties will only be charged in respect of the most serious and persistent failures. From 6 April 2014, in-year interest will apply on all amounts unpaid from the relevant due date to the date of payment.

From April 2015, the new late payment penalty regime will be charged automatically on late payments for the tax year 2015-16 onwards. HMRC will send you a late payment penalty notice quarterly in July, October, January and April, where appropriate. These penalty notices will show the amount of the penalty due for each tax month. For example, a penalty notice in July will show any late payment penalties arising in the first quarter of the tax year, that is, month 1 (6 Apr to 5 May), month 2 (6 May to 5 June) and month 3 (6 June to 5 July).

PAYE/National Insurance payments and deadlines

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Penalty rates and how they will apply

Penalties are charged on each PAYE reference number (also called a 'PAYE scheme'). Therefore, if you operate more than one PAYE scheme you need to make sure that amounts due for each individual PAYE scheme reference are paid in full and on time.

The total penalty charged can be made up of a number of items:

  • a default penalty, for failure to pay monthly/quarterly payments on time and in full
  • penalties for amounts still unpaid after 6 and 12 months

There are also additional penalties for amounts charged annually or occasionally.

The rest of this section explains how the penalties apply for different types of payment.

Monthly or quarterly PAYE payments

You will not be charged a penalty if only one PAYE amount is late in a tax year - unless that payment is over 6 months late.

The amount of the penalty will depend on how much is late and how many times your payments are late in a tax year. The table below shows how the penalties are calculated.

For tax years 2014-15 onwards no penalties will apply where there is a small difference in the amounts paid over each tax period compared to the amounts reported as due on your Full Payment Submissions (FPS) and any EPS - where appropriate - for the same period. However, daily interest will continue to accrue on all unpaid amounts from the due and payable date to the date of payment.

Penalty charges for late monthly and quarterly PAYE payments

Note: The first failure to pay on time does not count as a default.

Number of defaults in a tax year

Penalty percentage

Amount to which penalty percentages apply

1-3

1%

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

From April 2014: the total amount that is late in the relevant tax month (ignoring the first late payment in the tax year)

4-6

2%

7-9

3%

10 or more

4%

Example: ABC Ltd paid four payments late in the tax year 2013-14. The first late payment is not counted as a default therefore they have three defaults in total, which means that a penalty of 1% is due on the total amount of PAYE paid late (excluding the first late payment).

For tax years 2014-15 onwards, if ABC Ltd paid months 2-6 late, the first late payment (month 2) is not counted as a default. The employer has one default in the first quarter (month 3) and three in the second quarter (months 4-6). This means that a penalty of 1% will be charged on the amount paid late for month 3 at the end of the first quarter (July). At the end of the second quarter (October) a penalty of 1% of the month 4 and 5 amounts, and 2% of the month 6 amount of PAYE paid late, will be charged.

Additional penalties for monthly and quarterly payments over six months late

If you have still not paid a monthly or quarterly amount in full, after six months you will have to pay a penalty of 5% of the amounts unpaid. A further penalty of 5% will be charged if you have not paid after 12 months. These penalties may be charged in addition to the penalties for monthly and quarterly payments described in the previous section and apply even where only one payment in the tax year is late.

End of year adjustments

You will be charged a late payment penalty if you pay less than is actually due. This applies even where you pay roughly the right amount each month or quarter and then make an end-of-year adjustment. You should therefore make sure you pay on time and in full each month or quarter, rather than estimate the amounts you need to pay.

However if you pay an adjustment after the end of the year under a special arrangement such as applying the 'Intermediaries' rules (these are often referred to as IR35) or a formal modified PAYE arrangement known as 'Employment Procedures Appendix 6', HMRC will not charge late payment penalties, providing you keep to the terms of the arrangement.

To avoid receiving a penalty you must make certain that you pay the right amount on time each month or quarter.

Amounts due annually or occasionally

You may have to pay a penalty of 5% of the amount that is late if you have not paid the full amount by the date known as the 'penalty date'. There's more information about the different 'penalty dates' later in this section of the guide.

You may have to pay an additional 5% penalty if you have still not paid the full amount within 6 months of the due date and a further 5% penalty if you have still not paid the full amount within 12 months of the due date.

Penalty dates

The penalty date varies according to the type of payment.

For payments such as Class 1A and Class 1B NICs, HMRC determinations and assessments and amendments or corrections to returns the 'penalty date' is 30 days after the due date. This means that for these payments you may have to pay:

  • a 5% penalty if you have not paid the full amount within 30 days of the due date
  • an additional 5% penalty if you have not paid the full amount within 6 months of the due date
  • a further 5% penalty if you have not paid the full amount within 12 months of the due date

In most other cases, the penalty date is the day after the due date.

There's a link to the HMRC Compliance Handbook in 'Technical Guidance' at the end of this guide for more detail on annual or occasional penalties.

Paying penalties

From April 2014, all penalties are due for payment 30 days following the date of the penalty notice. Penalties not paid on time will attract interest.

HMRC interest rates

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If there's a good reason for not paying in full and on time

You won't have to pay a penalty if HMRC agrees that there is a reasonable excuse for the payment being late and that you paid as soon as you reasonably could after the reason for lateness ended.

What is reasonable will be different from person to person depending on their individual circumstances. However, it is normally an unusual event that is either unforeseeable or beyond your control. It is not possible to give a precise list of what is reasonable.

Some examples that may count as a reasonable excuse

These can include:

  • the death of a close relative or domestic partner around the time that payment was due
  • the payment is lost or delayed because of an unforeseen event - for example, a fire or flood at the sorting office where the payment would be held
  • serious illness of the person, or of a close relative, around the time the person should have made payment

Some examples HMRC would not usually accept as reasonable

These can include:

  • pressure of work
  • lack of information
  • HMRC did not remind you to pay
  • ignorance of basic law and guidance

In addition, the law says that HMRC cannot usually accept as reasonable:

  • cash flow problems/lack of money - HMRC cannot treat cash flow problems or lack of funds as reasonable unless they are due to unforeseeable events outside your control - if you are having difficulty paying there's information in the next section 'What to do if you can't pay'
  • relying on someone else. HMRC cannot normally accept that you have a reasonable excuse just because you asked someone else to make the payment and they did not - however if you have done all you reasonably can to make sure the person does make the payment on time, you may have a reasonable excuse, for example, you may have explained carefully to the person what they have to do, and by when - you may have checked on their progress and reminded them

If you think you have a reasonable excuse

If you think you have a reasonable excuse and you do not agree with the penalty, you can appeal - this is explained in the section below 'What to do if you disagree with a penalty'.

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What to do if you can't pay

HMRC expects payments to be made on time. However if you are experiencing any problems in paying what you owe you can find out what to do by following the link at the end of this section.

You should contact HMRC before any payment is due if you think you will have difficulty paying on time. If HMRC agrees to allow you time to pay and you contact them before the payment is due they will not charge penalties on those payments covered by that agreement, providing you stick to the agreement.

Business Payment Support Service

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What to do if you disagree with a penalty

If you disagree with the penalty, you have the right to appeal. You can appeal if you think:

  • the penalty is not due
  • the amount of the penalty is wrong
  • you had a reasonable excuse for the payment being late

You can also appeal against HMRC's decision not to accept your reasonable excuse if you still think you have a reasonable excuse.

From April 2015 you will be able to appeal online against late payment penalties for the tax year 2015-16 onwards, using HMRC's Online Service. This will not only allow appeals to be submitted electronically - in some cases HMRC will also be able to accept and settle the appeal automatically.

Using HMRC's Online Service - PAYE for employers

Alternatively, you can still send your appeal in writing. You should send a written appeal against a late payment penalty to:

Southend Debt Management
6th Floor Alexander House
21 Victoria Ave
Southend on Sea
Essex
SS99 1AA

The Notice of Penalty Assessment will contain a 'Unique ID' for each penalty shown on the notice. You must include the Unique ID to identify which penalty you wish to appeal against.

You can read more about how to appeal against a decision you disagree with in the guide 'How to appeal against an HMRC decision - direct tax'.

How to appeal against an HMRC decision - direct tax

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Technical guidance

Compliance Handbook

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More useful links

Correcting payroll errors

How to pay PAYE/Class 1 National Insurance

How to pay Class 1A National Insurance

How to make PAYE Settlement Agreement payments

Mandatory Electronic Payment - Surcharge for periods before 6 April 2010

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