Late payment penalties for PAYE/NIC

By Tolley in association with Philip Rutherford
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The following Corporation Tax guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Late payment penalties for PAYE/NIC
  • Introduction
  • Operation of the penalty
  • Notification of the quantum of the penalty
  • How does HMRC know that PAYE payments are late?
  • Reasonable excuse
  • Penalties for late payment of Class 1A and Class 1B NIC

Introduction

The late payment of income tax and national insurance contributions (NIC) via PAYE, student loan deductions and income tax due under the construction industry scheme will attract both interest and penalties.

The rules outlined below came into force for any tax month or tax quarter beginning on or after 6 April 2010. Prior to that date there were no penalties for late PAYE payments for the majority of employers as long as the amount due for the tax year was paid by 19 April (22 April if the payment was made electronically) after the end of the tax year.

There was a surcharge mechanism for large employers which was effective but could provide disproportionate levels of penalty and applied to only a small number of employers. This was repealed when the new late payment penalty regime was introduced.

Following substantial criticism for not having an adequate penalty regime and in light of increasing late payments by employers, HMRC introduced the new rules. This meant that penalties would be charged in relation in-year late payments for the first time.

The late payment penalties apply to all employers and contractors regardless of size. The regime covers all payments made throughout the year, whether on a monthly or quarterly basis and includes all payments in respect of:

  • 1)income tax payments via PAYE
  • 2)student loan deductions
  • 3)payments under the construction industry scheme (CIS), and
  • 4)Class 1 NIC via PAYE

FA 2009, Sch 56 para 5

Penalties in relation to late payment of Class 1A and Class 1B NIC are discussed at the end of this guidance note.

Operation of the penalty

The penalty is calculated based on three factors:

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