Compensation & Benefits: New PAYE penalty regime from April 2010

31 January 2012 |

HMRC has issued a draft order providing that the new penalty regime for late payment of income tax under PAYE will come into force from 6 April 2010

PAYE penalties are not currently charged.  However, given the ongoing drive by HMRC towards ensuring compliance, it is not surprising that a new penalty regime is being introduced.  It will apply to monthly, quarterly and annual “in year” PAYE payments which are not made on time and in full.  (For Class 1A NICs payments, the first payment to which the regime will apply is the payment due in July 2011.)

Penalties may be charged where more than one of the in year PAYE payments which is due is late in any one tax year.  Penalties will increase according to the number of times PAYE payments are made late.

However, HMRC has stated that penalties for late payment of PAYE will not be charged if only one payment date in a tax year has been missed and the payment was not more than six months late.  A penalty of 5 per cent of any amount that is late may arise if payment has still not been made after 6 months and a further penalty of 5 per cent if payment has not been received by HMRC after 12 months.

For employers with more than 250 employees, the new penalty regime will replace the mandatory electronic surcharge.  However, different percentages will now be used to calculate the penalty and the percentage will increase depending upon the number of times payment has been made late.

The penalty percentages for in year late payment are as follows:

  • 1 late payment in any tax year will not result in a penalty.
  • A penalty of 1% of the total amount which is late will apply if there are 2 to 4 late payments in any tax year.
  • From 5 to 7 late payments, the penalty increases to 2%, from 8 to 10, it is 3% and where there are 11 or more late payments in any tax year, the penalty rises to 4% of the total amount that is late.

HMRC will begin to issue the new PAYE penalties from April 2011 onwards.

Separate penalties will also be imposed for late filing of returns.

HMRC also announced in Budget Note 91 that the new provisions for in year interest (set out in Finance Act 2009) were due to come into force from April 2010.  HMRC has now confirmed that this is no longer the intention and the new provisions will not be brought in before 6 April 2012 at the earliest.

HMRC will therefore continue to charge interest on payments received after the due date following the end of the tax year.

Commentary

Given the complexity and number of various filing deadlines a company may have to comply with, companies should ensure that they are in a position to make payments of tax due to HMRC on time.  Clearly, one off mistakes will not be penalised by HMRC (as a penalty will not arise where only one late payment is made, provided this is less than 6 months late) but non-compliance with the tax filing deadlines can be costly.

Resources

Finance Act 2009, Schedule 56 (Appointed Day and Consequential Provisions) Order 2010

HMRC PAYE factsheet

Information on PAYE

PAYE – penalties for late payment – FAQ

For further information or to discuss the issues raised, please contact Guy Abbiss (guy.abbiss@abbisscadres.com) or Libs Davies (libs.davies@abbisscadres.com) on +44 (0) 203 051 5711.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

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To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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