Compensation & Benefits: New PAYE penalty regime from April 2010
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
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
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
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.
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