Introduction »

Employers - watch out if PAYE and NIC is paid late to HMRC

In April 2010, a new penalty regime was introduced by HMRC for the late payment of monthly PAYE and NIC by employers. The penalties are structured on a sliding scale. The more late payments in a tax year, the larger the percentage penalty applied to the aggregate of the late payments. A 4% penalty is payable if there are ten or more defaults during the tax year.

So if the total annual PAYE and NIC due from an employer in the tax year totals £200,000 but the employer has consistently paid the monthly PAYE one day late, HMRC may charge a penalty of £8,000.

The penalty system is not automated and HMRC review the position after the end of the tax year. So some employers had penalties issued in the summer of 2011 for the 2010/11 tax year and another round of penalties have been issued in the summer of 2012 for the 2011/12 tax year.

How do HMRC decide who gets charged?

HMRC have explained that at the end of each tax year, information about PAYE defaulters is extracted from HMRC's system and a spreadsheet is produced of '...the worst defaulters'. The individual records of the various employers on that list are then considered. In particular, the payment history is reviewed and the record of responses to calls from HMRC's Debt Management unit (the section of HMRC which administers tax debt collection). HMRC say they try to differentiate between employers who appear to be genuinely trying to pay and those who are not.

How does an employer avoid getting a penalty?

If all payments are made on time there is no penalty but you need to make sure you understand the payment rules.

The rules are based upon when HMRC receives the money, not when it is sent by the employer. For example if a payment is being made electronically, cleared payment must reach HMRC's bank account no later than the 22nd of the month following the end of the tax month or quarter to which it relates. If that date is on a weekend or bank holiday then it must be cleared by the last bank working day before the 22nd unless paying by Faster Payment.

If the business is struggling to meet some due dates, please talk to us as we will be able to advise about contacting HMRC to set up a 'time to pay' arrangement.

If the business has already missed some due dates this tax year, do not ignore letters or phone calls from HMRC on the matter. This could increase the risk of being added to the target list of employers who will get a penalty notice as a result.

As a Tribunal judge commented on an unsuccessful attempt by an employer to appeal against a penalty:

'In this case, there had been at least 18 unsuccessful attempts during the year to speak to the director to chase the late payments. On occasion, the response was rude or there was a straight refusal to pay. On many other occasions, calls were simply not returned.

It may well be that by a more constructive engagement with HMRC during the year, the appellant could have avoided the imposition of penalties at the end of the year.'

And finally, if the business does receive a penalty, please talk to us as there may be grounds for appeal against some or all of the penalty.

Introduction »