Home Insights PAYE penalties – and how to avoid them

PAYE penalties – and how to avoid them

By Ensors Team
31st Jan 2011

As an employer, do you find that paying the PAYE tax and National Insurance which you have deducted from your employees sometimes slips past the due date due to cash flow pressures? Or do you on occasion simply forget to make the payment in time?

If so, you would be well advised to ensure that payments are made on time from now onwards. HM Revenue and Customs (HMRC) introduced a system of charging penalties for PAYE deductions that are paid late from April 2010, so you may have already incurred a penalty without realising.

No penalty is charged if only one payment is made late in each tax year, as long as it is paid within six months. But if you are late more often the penalty will be charged, starting at 1% of the tax paid late for up to four late payments and then increasing incrementally so that if tax is paid late more than 11 times in a tax year the penalty goes up to 4%. And if payments are very late (more than six months), it will increase even further.

No penalties have yet been charged, but be warned – HMRC will not actually be calculating the penalties and sending notifications until after the end of the tax year. There is a reason for this – because the penalties increase in line with the number of late payments in the year, HMRC will not be able to calculate the amount due until all of the payments are received. And it will not be possible to keep the penalties low by paying a smaller amount than is due each month and then making up the difference at the end of the tax year – HMRC will estimate the ‘correct’ amount for each month and compare this with the amount actually paid. There may be good reasons why the PAYE fluctuates from month to month, but you will have to be able to substantiate this to HMRC.

You will be able to appeal against any penalties charged, but there must be a reasonable excuse – and pressure of work or lack of funds will not usually be viewed as a good enough reason for late payment.

As a reminder, the PAYE deductions should be paid by the 19th of the following month. If you pay electronically, you are allowed an extra three days, but HMRC must receive cleared funds by the 22nd of the month. If this falls at the weekend or on a bank holiday, the funds must arrive on the previous working day. Some employers are able to make payments quarterly rather than monthly, if the average monthly payment is less than £1,500.

Other employee deductions such as Student loan repayments and CIS deductions are also included within this new regime.