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Understanding RTI and PAYE late return and unpaid penalties

Penalties for late returns are charged on each PAYE scheme registered with HMRC, therefore, if you operate more than one PAYE scheme you need to make sure that amounts due for each individual PAYE scheme reference are paid in full and on time.

Penalties charged can be made up of a number of items:

    • a default penalty, for failure to pay monthly/quarterly payments on time and in full;
    • penalties for amounts still unpaid after 6 and 12 months.

There are also additional penalties for amounts charged annually or occasionally.

Monthly or quarterly PAYE payments

You will not be charged a penalty if only one PAYE amount is late in a tax year… unless that payment is over 6 months late. The amount of the penalty will depend on how late the payment is and how many times your payments are late in a tax year.

For tax years 2014-15 onwards no penalties will apply where there is a small difference in the amounts paid over each tax period compared to the amounts reported as due on your Full Payment Submissions (FPS) and any Employer Payment Summary (EPS) for the same period. However, daily interest will continue to accrue on all unpaid amounts from the due and payable date to the date of payment.

Additional penalties for monthly and quarterly payments over six months late

If you have still not paid a monthly or quarterly amount in full, after six months you will have to pay a penalty of 5% of the amounts unpaid. A further penalty of 5% will be charged if you have not paid after 12 months. These penalties may be charged in addition to the penalties for monthly and quarterly payments described in the previous section and apply even where only one payment in the tax year is late.

End of year adjustments

You will be charged a late payment penalty if you pay less than is actually due. This applies even where you pay roughly the right amount each month or quarter and then make an end-of-year adjustment. You should therefore make sure you pay on time and in full each month or quarter, rather than estimate the amounts you need to pay.

However, if you pay an adjustment after the end of the year under a special arrangement such as applying the ‘Intermediaries’ rules, often referred to as IR35 or a formal modified PAYE arrangement, HMRC will not charge late payment penalties, providing you keep to the terms of the arrangement. To avoid receiving a penalty you must make certain that you pay the right amount on time each month or quarter.

Amounts due annually or occasionally

You may have to pay a penalty of 5% of the amount that is late if you have not paid the full amount by the date known as the ‘penalty date’. You may have to pay an additional 5% penalty if you have not paid the full amount within 6 months of the due date and a further 5% penalty if you have still not paid the full amount within 12 months.

The Penalty Date varies according to the type of payment. For payments such as Class 1A and Class 1B NICs, HMRC determinations and assessments and amendments or corrections to returns, the ‘penalty date’ is 30 days after the due date. This means that for these payments you may have to pay:

  • a 5% penalty if you have not paid the full amount within 30 days of the due date
  • an additional 5% penalty if you have not paid the full amount within 6 months of the due date
  • a further 5% penalty if you have not paid the full amount within 12 months of the due date.

In most other cases, the penalty date is the day after the due date. From April 2014, all penalties are due for payment 30 days following the date of the penalty notice. Penalties not paid on time will attract interest.


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