Penalties for late payment of PAYE are about to bite

Penalties for the late payment of PAYE have now been in place for a year but so far they have not had an impact.

The penalties began in April last year but have not yet been levied because they are determined by the number of late payments made in one tax year. If an employer defaults once during a year, he will not receive a penalty. However, if 2, 3 or 4 payments are received late, a fine of 1% of the total defaults will be levied. If there are between 5 and 7 defaults, the fine is 2% of the total, between 8 and 10 defaults – 3% and 11 or 12 – 4%.

There will be some businesses that need to pay these penalties but the rate could not be determined until after the last PAYE payment for the 2010 – 11 tax year became due in April.

HMRC has said penalties will be applied on a risk assessed basis for the last tax year but accountants are not sure exactly what this means. For example, what happens if a client pays a nominal amount each month and then a large top up payment in April? Clearly this is an abuse of the system but unless the Revenue scrutinises its records it would be difficult to identify the exact amounts that have been paid late.

Some agents are concerned that these penalties could come back to haunt businesses in years to come if the company undergoes a compliance check. Tax accountants may want to warn their clients that this is a possibility.

The Revenue could also levy fines of between £100 and £3,000 for late filing of end of year forms. However, it is thought that SMEs, with fewer than 50 employees, will receive a warning this year before the penalty is charged.

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