New penalties for late payment of direct taxes
HMRC is introducing a new single penalty regime for the late payment of direct taxes which includes PAYE/NIC, Construction Industry Scheme payments, Inheritance Tax and Stamp Duty Land Taxes. The new regime will not apply to VAT.
From May 2010, the new penalties will apply to all late payments of PAYE tax and NI, Class 1a NI liabilities, CIS deductions made by contactors and student loan deductions. The penalty will apply to each late month rather than on the whole balance left showing as due on the P35 at the end of the year.
In year PAYE payments, including CIS deductions
From May 2010, two types of penalty may be incurred as follows:
- if more than one of the in-year PAYE payments is made late, a % related penalty
- if any single payment is more than 6 months late, a surcharge
Unless you are over six months late with an in-year payment, the amount of the penalty will depend on two things: how much is late and how many times payments are late in a tax year. The penalties will be calculated as follows:
| No of times payments are late in a tax year | Penalty percentage | Amount to which penalty percentages apply |
| 1 | No penalty | 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% |
Indications are that even if a payment is made only a day or two late, the penalties will be incurred unless a reasonable excuse is given. Reasonable excuse does not include the bank taking a few extra days to process the cheque, or the postal system being a day or two slower than expected!
Also, if PAYE has to be re-run or adjusted and this results in an additional liability being due, the penalty will be applied to the balance.
In addition to the above, a 5% surcharge is due if a liability remains unpaid after six months and a further 5% if liabilities remain unpaid after 12 months, similar to the self-assessment system.
Large employers (those with over 250 employees) must continue to pay electronically, but the Mandatory Electronic Payment surcharge will be replaced by the new penalties. You will not have to pay a surcharge and a new penalty on the same payment.
Class 1a NI liabilities
For P11D purposes, as the new regime does not apply until May 2010 onwards, the first Class 1a NI liability payment that will be affected will not be until July 2011.
At this time, a penalty of 5% will be incurred on any balance unpaid after 30 days from the due date, a further 5% after 6 months and a further 5% if still unpaid 12 months after the due date.
What to do?
Please be aware that you can no longer pay other taxes due in priority to PAYE as penalties will now be incurred on a much regular basis.
With the new penalties being implemented it is even more important that we all retain accurate information and complete things correctly and on time. It is also important that you try to pay liabilities as far in advance as possible, so that you are not affected by delays caused by late cheques, banks or postal delays.
People who enter in time to pay arrangements will be able to ask for the penalty to be suspended so if you know you are likely to be struggling to pay your taxes, please contact the payment support helpline before the payment is due.
