Late-paid PAYE: A ticking time bomb

As you may be aware HMRC introduced penalties for late-paid PAYE and related liabilities back in April 2010 but due to the way that the penalties are calculated the penalties have only started to be levied now.

Unfortunately it is not yet clear how this penalty regime will be applied and this may remain the case until the Real Time Information system is implemented. This is because HMRC's system does not flag up that a penalty situation has occured until after the last payment has been made and the year end reports have been filed.

It is only at this point that HMRC will be able to calculate if a penalty is due and the rate at which that penalty should be levied.

The penalties will be levied as follows

• First default – attracts no penalty if it is the only late payment in the year.
• 2, 3 or 4 defaults in the year – the penalty levied will be 1% of the total amount defaulted (including the first default).
• 5, 6 or 7 defaults in the year – the penalty levied will be 2% of the total defaults (again including the first one).
• 8, 9 or 10 defaults in the year – the penalty levied will be 3% of the total defaults (including the first one).
• 11 or more defaults – the penalty levied will be 4% of the total defaults (including the first one).

On top of this any amounts that remain unpaid after more than 6 months after the penalty date will be liable to a further 5% penalty with a further 5% penalty applying after 12 months.

As you can see the late payment of PAYE and related liabilities could very quickly become an expensive problem, but is one that can easily be avoided if payments are made on time.

If you require any further guidance with any of the above points or assistance with your payroll please contact us.