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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Having listened to customer feedback, 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 'Late returns for 2014-15 onwards'.
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.
HMRC has announced that existing employers with nine or fewer employees,
who need more time to adapt, can report PAYE information on or before
the last payday in the month until April 2016. This means that micro
employers who are still finding it difficult to report PAYE information
on or before the date they pay their employees will have more time to
adapt their arrangements so that their business is ready for full real
time reporting from April 2016.
The change is narrower than the current relaxation which comes to an end on 5 April 2014 - this new relaxation will only apply to existing employers with nine or fewer employees - all new employers, as well as existing employers with 10 or more employees, will need to report PAYE information in real time from 6 April 2014. Follow the link below to read about the relaxation which runs until 5 April 2014.
This support for existing micro employers will mean micro businesses and their agents have up to a further two years to change their processes and their arrangements to enable them to adapt to reporting in real time. HMRC recommends employers change their processes as soon as they can to ensure they're ready, in time for April 2016, when all employers must report PAYE information each time they pay their employees.
No penalty will be charged for late filing if the final FPS (or EPS) is submitted by 19 April. You cannot submit an FPS after 19 April for the previous year.
On your final FPS (or EPS) for the year make sure you:
After 19 April, you can submit an Earlier Year Update by 19 May and avoid a penalty.
If you do not report the final payment made to an employee, for the tax years 2012-13 and 2013-14, 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. Having listened to customer feedback, HMRC is defering the start of these penalties to give HMRC and employers more time to adapt to reporting in real time. They will now start from 6 October 2014. To avoid late filing penalties, you must make sure all submissions due are fully up to date by 5 October 2014.
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, you told HMRC by sending an EPS.
New, automated in-year late payment penalties will start from April 2015. In the meantime, HMRC will continue to charge late payment penalties - on a risk-assessed basis - 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'.
In addition to where submissions do not appear to have been filed by the due date, a late filing penalty for a month may be issued where one of the following applies:
However, no penalty will arise for the first month in each tax year where there is a filing default. This means there are a maximum number of 11 fixed penalties per tax year that can be charged for filing failures.
New employers will not be issued with a penalty if their first FPS is received within 30 days of making their first payment to an employee. But after that, normal penalties rules will apply if an FPS is filed late.
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, where 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% of the tax/NICs that should have been shown on the late return. This will be used for the most serious and persistent failures.
All penalties are due for payment 30 days following the date of the penalty notice. Penalties not paid on time will attract interest.
You won't have to pay a penalty if HMRC agrees that there is a reasonable excuse for the return being late and you filed that return as soon as you reasonably could after the reason for lateness ended.
What is reasonable will be different from employer to employer 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.
These can include:
These can include:
In addition, the law says that HMRC cannot usually accept as reasonable if you say you relied on someone else - it's not normally a reasonable excuse just because you asked someone else to file the return and they did not. However if you have done all you reasonably can to make sure the person does file the return 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 and you do not agree with the penalty, you can appeal - this is explained in the section below.
If you disagree with the penalty, you have the right to appeal. You can appeal if you think:
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 2014, you will be able to appeal online, against the new late filing penalties which relate to the 2014-15 tax year 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.
Alternatively, you can still send your appeal in writing. You should send a written appeal against a late filing penalty to:
Customer Operations Employer Office
Benton Park View
Newcastle Upon Tyne
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'.