PENALTIES FOR LATE PAYMENT OF PAYE AND CIS
In April 2010, HMRC introduced a new penalty regime for the late payment of PAYE and
CIS. Although this does not appear to be news, HMRC have started to impose penalties of
tens of thousands of pounds on employers under the regime.
How are the penalties calculated?
The penalties are based on a totting up procedure depending on the number of defaults
during a tax year. A penalty will not be levied for the first default and rises as follows:
• up to three defaults - 1% of total amount of those defaults;
• four, five or six defaults - 2% of the total;
• seven to nine defaults - 3% of the total; and
• ten or more defaults - 4% of the total.
If any tax is unpaid six months after the penalty date, then a penalty of 5% will be levied
and a further 5% can be levied after 12 months.
What do the penalties apply to?
HMRC charges late payment penalties on amounts due that are not paid in full on time,
• monthly, quarterly or annual PAYE;
• student loan deductions;
• CIS deductions;
• Class 1 NIC; and
• annual payments of Class 1A and Class 1B NIC.
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Class 1A and 1B NIC
The 5% penalty above also applies to any Class 1A (on benefits in kind and due in July)
and Class 1B (on PAYE Settlement Agreements and due in October) NIC paid late.
Will HMRC send us a warning?
HMRC may send you a warning letter if you do not pay on time. They may do this the first
time in the tax year they think your payment is late.
However, the letter is only to let you know that HMRC think that you have made a late
payment and that a penalty could be charged. It is not a penalty notice and you can’t
appeal against it. Often, no letter is issued.
Are there any let-outs?
There may not be a penalty if HMRC agree that there is a reasonable excuse for the late
payment(s) and you pay as soon as you reasonably could after the reason for the late
HMRC do not usually accept pressure of work, lack of information, failure of HMRC to
remind you to pay or ignorance of the law as an excuse. In addition, HMRC cannot treat
lack of funds as reasonable unless the shortage is due to events outside of your control.
Although the penalties apply to month on month failures and have done so since April
2010, it appears that HMRC are only reviewing the position after the end of each tax year,
i.e. months after the failures have arisen.
Bearing in mind that HMRC have two years to impose these penalties, it is critically
important that your business makes its payments on time.
Please let us know
We are now seeing cases where HMRC are imposing penalties of £10,000 - £50,000, so if
you are having difficulties paying your liabilities, please do get in touch as soon as
possible. It may then be possible to negotiate time to pay and possibly avoid the penalties.
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