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 the individuals' tax, National Insurance contributions (NICs) 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 notify HMRC - by sending an Employer Payment Summary (EPS) - by the 19th of the following tax month. This will make sure HMRC don't wrongly issue a penalty because they were expecting an FPS from you.
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If you don't submit your FPS on time, or you don't tell HMRC by sending an EPS that you haven't paid any employees in the tax month, they may raise an estimated charge - referred to as a 'specified charge'. HMRC may raise a specified charge for each tax month that you don't send a real time submission.
A specified charge is HMRC's calculation of what you owe, based on your previous PAYE payment and filing history.
You can find out more about specified charges in the guide 'PAYE/National Insurance payments and deadlines'.
There is 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 won't be charged penalties for sending FPS late unless it's 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 later in this guide.
There is a temporary relaxation of real time reporting which is intended to give some extra time for filing 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 April 2014, employers with fewer than 50 employees may send information to HMRC by 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 following the end of the 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 don't report this information by 19 May, or fail to 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 avoid further penalties.
If your return remains outstanding for more than four months, you'll receive a penalty notice shortly after 19 September and, if appropriate, the following January and May. These penalty notices will show the penalties you have incurred because you haven't sent your returns on time and will tell you how to pay. 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 discovers careless or deliberate errors, 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 if there is an error on the final FPS for the year, or a failure to correct earlier errors by the year-end. This will ensure employers who joined the (Real Time Information) RTI pilot are treated in line with employers who did not start sending real time information until April 2013.
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 which contained the inaccuracy. The penalty will be charged under Schedule 24, Finance Act 2007. HMRC may issue one penalty notice for inaccuracy penalties for multiple tax periods in a year.
You can read Questions and Answers about inaccuracy penalties by following the link below and you can find out more about correcting errors in the current year in the guide 'Correcting payroll errors - current year'.
New late filing penalties will apply to returns due from employers for the tax year 2014-15 onwards.
Where payment information is not received as expected on an FPS, or you haven't told HMRC that no employees have been paid in a tax period by sending an EPS, late filing penalties will apply. These rules apply to each PAYE scheme, rather than each employer. So, if you operate more than one PAYE scheme you need to make sure that the FPS for each individual PAYE scheme reference is submitted on time or, where there were no payments made to any employees for a particular scheme for a tax period, that you told HMRC by sending an EPS.
Similarly, late payment penalties will be charged in-year on payments due from employers for the tax year 2014-15 onwards. You can find out more about late payment penalties in the guide 'PAYE/National Insurance late payment penalties'.
Late filing penalties will apply on a monthly basis where payment information is not received as expected on an FPS, or where you haven't told HMRC that no employees have been paid by sending an EPS. However, no penalty will apply for the first month in each tax year that returns are filed late. So employers paying their employees at intervals up to monthly could incur 11 fixed penalties each year. Employers paying employees quarterly could incur three fixed late filing penalties each year. This exception does not apply to those employers operating annual schemes.
New employers will not be penalised if their first FPS is received within 30 days of making their first payment to an employee.
The size of the late filing penalties depends on the number of employees within the PAYE scheme.
Number of employees
Amount of the monthly filing penalty per PAYE scheme
1 to 9
10 to 49
50 to 249
250 or more
HMRC will use the latest information available to determine the number of employees, and the size of the filing penalty for each period where a return is late.
Ordinarily, HMRC will send employers a filing penalty notice quarterly in July, October, January and April, if appropriate. These penalty notices show the amount of the filing penalty for each tax month identified in that quarter. For example, a penalty notice in July will show any filing 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).
The penalty notice will advise you of the amount you're being penalised, tell you how you can pay it and what to do if you don't agree a penalty is due.
Where a return is late for three months or more and the information that it would have contained has not been provided on a later return, a further penalty may be charged. This additional penalty is set at 5 per cent of the tax/NICs that should have been shown on the late return.
All penalties are due for payment 30 days following the date of the penalty notice. Penalties not paid on time will attract interest.