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Introduction of late payment penalties on PAYE

13 February 2010

With effect from the tax year 2010/2011, HM Revenue & Customs (HMRC) are introducing new rules relating to the payment of PAYE by employers including late payment penalties.  These will apply to ALL employers and contractors who make PAYE payments. 

The payments affected will be: Income Tax and Class 1 NICs collected via PAYE, Class 1A NICs on benefits, Class 1B NICs, CIS deductions and Student Loan Deductions.

For employers who have over 250 employees the penalties will replace the Mandatory Electronic Payment surcharge.  The percentage used to calculate the penalty will be different to those used to calculate the surcharge and it will apply to the amount late each month, rather than the total tax due on the P35.

The existing rules will still apply to any PAYE payments due for tax years earlier than 2010/2011 i.e. payments that should have been made by 19 April 2010.

It is also worth noting that any underpayments made that are corrected at a later date will also be liable to a penalty so it is vital that businesses get accurate information about what is owed in good time.

From May 2010 a penalty will be payable if more than one in-year PAYE payment due is late in any tax year or if any payment is very late.  Penalties will be calculated as a proportion of the amount that is paid late.  The percentage used will get bigger depending on how often payments are late.

The table below shows how the in-year late payment penalties will be calculated:

No.of times payments are latePenalty percentage
1No penalty
2-41%
5-72%
8-103%
11 or more4%

 

A penalty will be payable of 5 per cent of any amount that is late if still unpaid after 6 months.  A further 5 per cent penalty can be added if the payment is made after 12 months.

With Class 1A and 1B NICs the penalty will also be 5 per cent of the amount that is late if unpaid 30 days after the date due.  A further penalty of 5 per cent of any amount paid late will be due if it remains unpaid for up to 6 months after the date due and a further 5 percent if not paid 12 months after the due date.

If payments are just a day or two late the penalty will still be payable.  However, there will be no penalty if the payments are only late once in the tax year or if the business has a reasonable excuse (unusual events and things which cannot be predicted or prevented, but this must be as agreed by HMRC).  Inability to pay and deliberately not paying are not reasonable excuses.

If a business is in difficulty and needs more time to pay an officer of the company should ring the HMRC Business Payment Support Service on Tel: 0845 302 1435 before the payment is due.  No penalty will be imposed for a late PAYE payment if HMRC have agreed to give extra time to pay (a Time to Pay Arrangement).

It is important that businesses know when their key tax deadlines fall as it is their responsibility to pay on time.  HMRC are not responsible for issuing reminders.

Some business have fallen into the habit of making approximate payments month by month during the year and then make end of year adjustments to make up any unpaid amounts.  However under the new rules a penalty will be incurred if all payments are not paid in full and on time throughout the year.

The new rules allow HMRC to charge penalties at any stage during the tax year or after the end of the tax year (providing penalties are charged within two years of the due date).  For the first year HMRC will charge the penalties after the end of the tax year – so will send out the first penalty notices in April or May 2011.

For a full overview of all the changes please refer to the HMRC web site http://www.hmrc.gov.uk/employers/paye-penalties-faqs.htm

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