Late Paid PAYE

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.

HMRC indicated that the penalty would be applied on a risk assessed basis for 2010/11, but it is not absolutely clear what this means. For example, a client who has paid £500 per month for 11 months, followed by £45,128 in April to top up his year’s payments is clearly abusing the system, but HMRC would not be able to identify the precise amounts paid late without inspecting the records, as the final payment for the period ending 5 April 2011 is not late, but it is not clear how much of the final payment relates to April.

Other PAYE penalties
From 6 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 £3,000 depending on the number of forms that should have been filed online. It is likely that small employers (those with less than 50 staff) will be warned first this year before a penalty is charged.