Penalty Guidance on late payment of PAYE

So what are the penalties?

The amount of penalty incurred depends on the number of defaults on payment.  HMRC have stated that the first failure will not be considered a default.
However thereafter:

Additional penalties will be added where liabilities are outstanding for a further six and the 12 months.

Penalties will be applied irrespective of the number of days late within a month so whether you are a day late or 15 days late, the same penalty will still apply.

HMRC will not consider your penalty position until April 2011 and you will not be notified until then that you have defaulted.

Even if you are aware of a late payment, and you have taken action to remedy the problem, it will still count as a default within the current tax year.

An example of reality

Let's assume a company pays £15,000 PAYE / NIC each month to HMRC and the first payment (due 19 May) is received late.  As this is the first default, HMRC will ignore it.

Assuming that each month thereafter, the correct amount is paid, but is received one day late each time, then throughout the year there will have been a further 11 defaults.

Taking the penalty structure detailed above, the company will receive a 4% penalty.

11 months x £15,000 = £165,000 @ 4% = £6,600 penalty
The effective interest is 122%.

What to do if you can't pay

HMRC are advising employers to let them know if they are likely to have difficulty making a payment on time, so that arrangements can be made and penalties can be avoided.  Their guidance states that where employers enter into 'time to pay' arrangements, before the liability becomes due, no penalty will be charged.

Our advice

The penalties will apply to all PAYE deductions due for a period starting on or after 6 April 2010 and include:
PAYE
Student Loan deductions
Construction Industry Scheme payments
Class 1 National Insurance contributions
Annual payments of employers' Class 1A National Insurance contributions
Annual PAYE Settlement Agreement payments

We are therefore advising clients to make sure their payments reach HMRC as cleared funds well in advance of the monthly deadline or if having difficulty to contact HMRC as soon as possible to make provisions.

And if you know that you will be unable to make a payment or it will be late, then to make sure the following month's payment is in full and on time as remember, the first default will be ignored.

How we can help

For those clients we already administer a payroll for, but don't process payments to HMRC for, we would be happy to take care of this for you.  By signing up with our accredited BACS bureau we can take over responsibility for ensuring your payments arrive on time, freeing up your time to concentrate on running the business.  Please email Monima Simpson-Smith or call her on 024 7622 0208 if you would like our help.