PAYE late payment penalties have been in place for a year, but have not had an impact yet because of the way they are calculated. Rebecca Benneyworth offers a precautionary guide for those who may be affected.
Penalties for late paid PAYE and related liabilities commenced in April 2010 but due to the way that penalties are calculated none will have been levied until now. Even then, it is not clear how the penalty regime will be applied in the period until Real Time Information is implemented.
The new penalties for late payment of payroll taxes are determined by the number of defaults (ie late payments) in a tax year. The first default does not attract a penalty if it is the only late payment in the year. However if there are further defaults, the penalty is:
- When there are 2, 3 or 4 defaults in a tax year the penalty is of 1% of the total of the defaults (including the first)
- When there are 5, 6 or 7 defaults the penalty is 2% of the total of the defaults,
- When there are 8, 9 or 10 defaults the penalty is 3% of the total amount of the defaults, and
- For 11 or more defaults the penalty is 4% of the total defaults.
Any amounts that are unpaid more than six months after the penalty date are liable to 5%, and a further penalty of 5% applies after 12 months. Higher penalties are due when the amounts relate to periods of six months or more.
Some businesses will clearly be due to pay a penalty for late payments in the 2010/11 tax year, but it is not until; after the last payment for the year was due (19th or 22 April) that it is possible to determine the number of defaults in a year and therefore the rate of penalty.
Some agents have expressed concern that these penalties could come out of the woodwork years down the line if a business has a compliance check and it is found that late payments have been made. There seems to be nothing to stop an officer from tracking back through each year identifying the amounts on which penalties are due and collecting a huge penalty at one go.
Clearly, it is in your clients’ interests for you to warn them carefully about these penalties in respect of future years and then wait for the letters to arrive!
Other PAYE penalties
From 1 April 2011, most employers must now file the in-year forms (P45/leavers and P46/joiners) as well as end-year returns (P14s and P35s) by internet. If you do not file online when required to do so, HMRC may charge penalties from £100 up to a maximum of £3000 depending on the number of forms that should have been filed online. Extra-statutory concessions for firms will fewer than five employees who file paper returns will not apply this year. Further details:
Penalties could also be raised for those who fail to file nil returns
PAYE and NICs are also part of the standardised penalty regime for inaccuracies that applies across most of HMRC's main tax types.