HM Revenue & Customs (HMRC) is working closely with employers, payroll providers and software developers to make it easy for employers to comply with operating PAYE in real time, and to make it part of their normal payroll processes.
You must submit a Full Payment Submission (FPS) each time you make a payment to an employee. The final FPS for an employee should be sent on or before their last pay day in the tax year and will be used to update individuals' tax, National Insurance contributions and student loan deduction records.
If you do not pay any employees in a tax month, and therefore have no FPS to send to HMRC, you must send an Employer Payment Summary (EPS) by the 19th of the following tax month. This will help HMRC avoid incorrectly issuing you with a penalty because they were expecting an FPS from you.
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There will be no change to the penalties for late filing of returns for the tax years 2012-13 and 2013-14. The current penalty regime will continue to apply at the year end.
HMRC wants employers to file on time, rather than issue penalties, and employers will not be charged penalties for sending FPS late unless it is the final one for the tax year. This means for these two tax years, employers operating PAYE in real time will be in a similar position to employers who were still operating traditional PAYE. These existing penalties are explained below.
To ensure that employers operating PAYE in real time are treated consistently with those operating traditional PAYE, HMRC will allow certain limited easements for tax years 2012-13 and 2013-14 as shown in the following sections.
HMRC has agreed a temporary relaxation of real time reporting to give some extra time to small businesses that pay weekly (or more frequently) but who only run their payroll (or use an agent to run their payroll) at the end of the month. This means that until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th of the month). Read more about this temporary relaxation.
If you do not report the final payment made to an employee, for the tax years 2012-2013 and 2013-2014, by 19 May in the following tax year you will be charged a late filing penalty.
Penalties are calculated on the basis of £100 per 50 employees and accrue for each month (or part month) that a return remains outstanding after 19 May.
If you fail to report this information by 19 May, or tell HMRC no return was due by sending an EPS, they will write to you (and your authorised agent if you have one) advising that a penalty may already have been incurred and that you must report this information as soon as possible to prevent the penalty building up any further.
If your return remains outstanding for more than four months, you'll receive a penalty notice shortly after 19 September and, if necessary, the following January and May. These penalty notices will show the amount of penalty that's building up because you haven't sent your returns on time and will tell you how to pay it. More guidance about when to report and deadlines can be found by following the links below.
HMRC use a risk based approach to identify employers they think may be submitting incorrect returns. Where HMRC discover an error, the penalties that could apply will be based on the behaviour that led to the error and the amount of potential lost revenue for that return. Errors that arise despite taking reasonable care attract no penalty at all and penalties for errors due to failure to take reasonable care can be reduced to zero with full and unprompted disclosure to HMRC. Further guidance on penalties for inaccurate returns is available at the end of this section.
Employers who operated PAYE in real time in 2012-13 will not be charged a penalty in-year for inaccuracies on FPS returns submitted each payday. But penalties may be charged after the end of the tax year, based on the final FPS for the year. This will ensure employers who joined the Real Time Information (or RTI) pilot are treated in line with employers who did not start sending real time information until April 2013.
If an inaccuracy is discovered in an FPS submitted during the tax year 2012-13, the employer will be told to correct the inaccuracy in the next FPS. HMRC will contact the employer in writing to tell them to show the correct pay and deductions in all subsequent FPS, including the final FPS for the tax year.
For the tax year 2013-14 an inaccuracy in any FPS submitted could attract a penalty. It will be based on the potential lost revenue for the FPS that was incorrect. The penalty will be charged under Schedule 24, Finance Act 2007. HMRC may issue one penalty notice for multiple inaccuracy penalties in a year.
You can read Questions and Answers about inaccuracy penalties by following the link below.
HMRC has consulted with employers, payroll providers and software developers on how penalties will apply from April 2014. The consultation document 'Securing Compliance with Real Time Information - Late Filing and Late Payment Penalties' can be found by following the link at the end of this section.
Details of how penalties will be charged automatically from April 2014 will be published in due course.