Interest on late paid PAYE liabilities

By Tolley in association with Philip Rutherford
Employment_tax_img8

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

  • Interest on late paid PAYE liabilities
  • Introduction
  • Interest on late PAYE / NIC payments
  • Mitigation of interest

Introduction

Interest on late paid tax is a compulsory charge set out in legislation to reflect the interest which would have accrued to the Exchequer had the correct amount of tax been paid at the right time.

From April 2010, a single rate of simple interest on late payment of tax applies across all taxes, with the exception of corporation tax. This guidance note focuses on interest chargeable on late payments of PAYE liabilities. The details of how the interest regime applies to other taxes can be found in the TolleyGuidance modules for Personal Tax, Corporate Tax, IHT and VAT, as appropriate (subject to subscription).

FA 2009, Sch 53

Interest accrues from the date on which the payment was due until the date on which the payment is made. It should be calculated on a daily basis. It accrues at the HMRC published rate of interest. The current and historic rates of interest on late payments can be found on the GOV.UK website .

FA 2009, s 101(3)

Interest does not accrue on late paid interest, ie the interest is calculated as simple interest rather than compound interest.

For example, if a taxpayer was due to pay £10,000 on 1 January but does not pay it until 21 January, an interest charge of £17.80 arises (ie £10,000 x 20/365 x 3.25% (current rate)).

Overpayments of tax made by the taxpayer to HMRC attract interest, but at lower rate than those on underpayments of tax.

Late payment of tax might also attract a penalty, see the Penalties for late payment by employers guidance note.

Interest on late PAYE / NIC payments

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