Late paid PAYE: a ticking bomb

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Rebecca Benneyworth
Rebecca Benneyworth Training Consultants
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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.

More details here


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23rd May 2011 12:22

NIL returns

Has anybody ever tried to file a NIL P35?

How do you do it (online)?

Odd that there should be penailities for not filing NIL returns when HMRC's system appears to refuse to accept a NIL P35s.

(I know what you're thinking - yes, the salary is NIL and the P11D has reportable items - so the P35 is still due?)

-- @proactivepaul the paperless accountant dot com

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23rd May 2011 12:30


We use moneysoft and this allows nil P35s to be submitted.

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23rd May 2011 12:40

Nil P35 return

Took me a while to work it out.

If your software produces a P14 but essentially the P35 is a nil return then you can file this as normal. However, if you have no P14's to file then you need to go directly onto HMRC website

You can choose to make a nil return either as an employer or as an agent. Agent option allows you to notify 8 clients at a time.


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23rd May 2011 12:44


The HMRC link has been superceded any idea of the revised one?

Pity the link for PAYE nil returns does not have the agent facility mentioned.



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23rd May 2011 13:05

Odd ....

I submitted a nil return for one of my own companies but as agent. I did this on HMRC's site rather than using software. I did the P14's as Nil, with NI code X and then filed the P35 - absolutely no problems at all. And I spoke to them this morning to confirm nil payment due for the year and it's showing on their system as nil although I only filed it on 19th (left my own til last!). So I'm not sure where the problem lies?

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23rd May 2011 13:10

P35 Q6

An interesting article by Accountax on the P36 Q6 debacle may be of interest!

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23rd May 2011 13:15


Try this:

Can be easily found by typing in 'nil return' in the search box on HMRC website!

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By Bolo
23rd May 2011 13:19


This link should take you directly onto the agents NIL P35 structered email.

I used the same link last year for 2009/10 so they must simply update it for whatever the current filing requirement is.


EDIT: Too late, beaten to the link

I would add that you should keep a note of the email acknowledgement number as we have had problems in the past where HMRC gave out penalties for non submission of P35's despite giving an email reference for a successful NIL P35.

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23rd May 2011 13:54

No such thing as a nil P35 return

There is confusion over the terminology.

If by "Nil Return", you mean that you want to tell the Revenue that no P35 is due - because there were no employees paid over the LEL for NI and it was their only job - you do it online here (assuming that you are an agent), as others have said.  If no P35 is due, there can be no penalty.  If you fail to notify that no P35 is due or if the Revenue impose a penalty anyhow, you do not appeal against the penalty - you complain that the Revenue have acted illegally and demand that they cancel the penalty immediately.

If by "Nil Return", you mean that a P35 is required, but there was no PAYE payable - because there were employees paid over the LEL, but below the ET for NI and it was their only job - you file a P35 & P14s in the usual way.

If by "Nil Return", you mean that you want to notify that no PAYE is due for a month or quarter (Rebecca's usage in her original post), you do it online here.  However, I disagree with Rebecca's apparent suggestion that penalties might be charged if you fail to submit a nil PAYE payslip, for two reasons:

There is no penalty for failing to submit a PAYE payslip, nil or otherwiseThe penalties for late payment of PAYE are calculated as a % of the PAYE paid late and any % of nothing is still nothing.

... which, of course, does not mean that the Revenue might not try to impose an illegal penalty.

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By sneeze
23rd May 2011 14:20

Warning sent to client today!

One of our clients has received a warning from the Revenue telling them that although they have accepted a paper P45 from them on this occasion, they will NOT accept any further paper returns from them!

Stupid thing is, we are the payroll agent and we have NOT sent any paper P45's to them for this client for a couple of years and the P45 to which they refer is for someone unknown to us or our client!

The Revenue were contacted by telephone to inform them of this error (using contact number on letter), and we were told to speak to the service centre ............... you guessed it! - on hold for 30 minutes!

We gave up and tried the dedicated agents helpline ........... you probably guessed this too - THEY DON'T HOLD A 64-8 !!!!!! When we told them that as we were the agent on the Gateway and HMRC site this could not possibly be the case, we were basically told "tough - get a new one"!!!

We have now taken the view that although some poor so & so's information will not have been recorded correctly at HMRC, we've got better things to do than enlightening the revenue! ......... where will it all end? 

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23rd May 2011 15:17

Separate penalty regimes

There seems to have been a mix up in the original article between penalties for failure to PAY, which is what I wrote about, and the penalties for other "offences" under PAYE, which were added to the foot as further information for members. I'm going to edit to make clear, but thanks Euan, I hadn't clicked through the link so I didn't realise what was linked.

In essence, as HMRC is getting more aggressive (or efficient?) about chasing in year payment - and reference my article on in year penalties for late payment - there is potentially quite an issue if employers fail to file nil payslips. There is no penalty for failure to pay a nil amount (yet!!) but you might get the dear old DMB giving you or your client strife / turning up to "mark goods for auction" etc etc unless you keen on top of the nil due situation (Which can be done online here). HMRC's view would seem to be "Until you formally tell us nothing is due you will be subject to DMB process". So that clears up that.

In terms of a Nil P35 - if there is no obligation to operate payroll as no employees have been paid during the year, then as Euan rightly says no P35 is due. Once employees are paid at or above LEL you are required to operate a deduction scheme and record their pay. If you have any employees on emergency code (BR last year, 0T this year) and they are paid £1 you must similarly operate a scheme. In these cases a P35 must be filed - and in the former, there will be no PAYE or NIC to pay if they are the only employees - viz a director paid at the threshold. If this is late, then a penalty will be due. In the absence of a return, HMRC's systems will assume that a return is due and therefore penalties will be raised unless and until you inform HMRC that no return is due for the year.

I'll go back on the article now and edit the last bit but hopefully this provides an adequate trail for those coming to the thread now.

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25th May 2011 12:33

Nil P35

I have been able to file "Nil" P35 with Iris PAYE Master software - but had to create a "nil" P14 first.


I also have a OMC with director paid below thresholds - Revenue first advised must notify every month no PAYE due, but then said we could elect to have annual payments to avoid having to notify every month nothing was due - only problem was they said we had to telephone to make this request - and they won't answer the damn phone!!!


Does anyone know if we can elect for annual payments of PAYE online?

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25th May 2011 13:49

Annual P30s

What a great idea.  When you find out how please let us all know.   Why can it not be done electronically.


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25th May 2011 17:26

Try writing

... to the PAYE office where HMRC have centralised all the Employers Sections:


Employers Office

Chillingham House

Benton Park View

Newcastle upon Tyne

NE98 1ZZ

I assume that you were trying to 'phone the Employers Helpline on 0845 714 3143; if not, try that number.


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15th Jun 2011 14:19


Client just their penalty notice. 11 defaults average monthly bill £5k late by a couple of days - penalty 4% on EACH late payment so a total of £2k+. Will it focus their mind? Doubt it.

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By rwa
13th Aug 2012 11:47

PAYE late payment penalties


My clients are a small company with a staff of 60 and they have had a claim for £22,000 as a penalty for late payment of PAYE NI in 2010/11.

I know HMRC announced they were going to take a much firmer line, and we did tell the Finance Manager to make payments on time, but she continued to pay a couple of days past time just like she had always done. 
Hence 9 late payments for an average of 2 days - in terms of interest cost of late payment, I make it £452.  and yet they have a penalty of £22,000.
This is a great case because for insignificant infringements it has produced a ridiculous result.
How come they can get away with this - not telling businesses that any penalty had become payable until 12 months after the first penalty had actually arisen? And how come VAT works in a responsible way to clearly notify when penalties will become due and when they are charged?
Do we just have to accept it?
I have of course appealed, but we have one reasonable excuse for one late payment, but not for the other 8 minor late payments.
Tribunal expected shortly.

​Any thoughts, ideas welcome!

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