When it comes to remitting employee deductions to HMRC, you just cannot afford to miss the deadlines. Lorraine Owens explains the implications of the new penalty regime
HMRC has introduced a new penalty regime for late payment of the following taxes:
- Income tax and Class 1 NIC collected via PAYE.
- Class 1A NICS on benefits.
- Class 1B NICS on tax settled under a PAYE settlement agreement.
- Construction industry scheme (CIS) deductions.
- Student loan deductions.
Detailed guidance is available from HMRC by clicking here
The first affected payments will be those due on or after 19 May 2010. From that date payments which are made late will incur a penalty which increases with the frequency of late payments.
| Number of times payments are made late in the year |
Penalty percentage |
Amount to which penalty percentages apply |
| 1 |
No penalty unless payment is outstanding for more than six months |
Total amount that is late in the tax year, ignoring the first late payment in that tax year. |
| 2-4 |
1% |
| 5-7 |
2% |
| 8-10 |
3% |
| 11 or more |
4% |
Where a payment is more than six months late a further 5% penalty will be imposed and an additional 5% if it is still outstanding12 months after the due date.
Modified PAYE schemes provide for PAYE and NIC to be paid on estimated earnings; so long as the PAYE and NIC is paid on time and the amount paid was correct when calculated on the basis of estimated earnings, no penalties will apply.
The payment dates you must comply with are:
- In year PAYE payments, CIS Deductions and Student Loan Deductions by the19th of the month for ordinary payments and the 22nd of the month for electronic payments.
- Year End PAYE payments by 19 April for ordinary payments and the 22nd of the month for electronic payments.
- Class 1A NIC by 19 July or 22 July for electronic payments.
- Class 1B NIC by 19 October or 22 October for electronic payments.
Danger zones
At least for the first year of operating the new penalty regime HMRC will not actually be issuing the penalty notices until April or May 2011. You could therefore find yourself with a nasty and delayed surprise in April 2011 and also possibly have lost the ability to appeal it if, by that time, the reason for the delayed payment has been forgotten, or perhaps the employee responsible has now left the organisation.
Take a moment to consider how your organisation may be caught out and what steps could be taken to minimise the possibility of errors:
PAYE errors. Making a mistake is not a reasonable excuse in itself. Failing to action forms SL1 for student loans will result in a late payment. Failure to action P6 code change notices may also result in underpayment. Other errors of the kind routinely identified in employer compliance reviews could also result in underpayments. Such errors may be minor, for example with expenses payments which should have been paid through payroll. More significant errors arise from incorrect employment status, or incorrect treatment of termination payments. Perhaps now is the time to undertake a review of your employer compliance and make sure that you have the right controls in place and find any errors before the May 2010 start.
Payment dates. Just a one-day late payment will attract the penalty, ensure that you have controls in place which are robust and allow you to spot when a payment has not been made and better still keep track of when and how much has been paid. It is wise to have clear process controls and contingency plans for staff absence, HMRC does not typically accept staff absence as a reasonable excuse unless there are other mitigating circumstances.
Group companies. If you are in a group of companies take care to ensure that the correct payment references are used for all payments. HMRC guidance states clearly that an overpayment on one company will not offset an underpayment in another. It seems illogical that if you have actually paid the PAYE on time, and HMRC has it already, that you might be penalised but it seems this is HMRC’s intention. Whether or not you might be able to successfully appeal the penalty remains to be seen but it is likely that a penalty will be issued and you will be fighting your corner to have it removed.
Class 1A NIC due with Form P11D(b). P11Ds are the year-end report to HMRC of all benefits and expenses provided to employees1. The forms are prone to occasional errors as a result of the mass of data required to prepare them. Company car data is often wrong where, for example, the employee has changed cars mid way through the year. Often errors are not picked up until the employee receives the P11D and then queries it. P11Ds must be with employees by 6 July following the end of the tax year which only allows for 13 to15 days for any errors to be corrected. Added to which it is the start of summer holiday season and it may be that employees do not report errors until they return from holidays. Consider issuing P11Ds earlier and actively requesting that employees report any errors or omissions by 6 July.
Class 1B NIC due on PAYE settlement agreement settlements. There is a long gap between submitting the calculations to HMRC in August and the payment deadline on 19 or 22 October.
Appeals
If you do incur a penalty you can expect to receive a letter from HMRC advising you of the amount and when it must be paid. If you have a reasonable excuse then you can appeal against the penalty. A reasonable excuse is likely to be something unusual, which was not foreseeable and which you could do nothing to prevent. An appeal must be lodged within 30 days of the penalty notice being issued, you can seek an extension if you have a reasonable excuse for missing the deadline. If you are unable to pay contact the HMRC Business Payment Support Service on 0845 302 1435. If you are permitted to enter into a ‘Time to Pay’ arrangement penalties will not be charged from the date you contact HMRC. It is therefore much better to call them before a payment due date.