Compliance
Doreen Playle
Want your accounts done correctly and hassle-free? ? Owner at Zenith DP Accounts Ltd ? We plan for your success
COMPLIANCE?-?07.07.2022
What happens if you pay PAYE late?
Your company has a short-term cash-flow shortfall due to a large customer paying late. One way around this would be to delay making the PAYE payment by a few days. What are the consequences of doing so?
The next step
When is a PAYE payment late?
For most employers, electronic PAYE/NI payments have to reach HMRC’s bank by the 22nd?of the following month.
Pro advice.?If the 22nd?falls on a Sunday, then the payment has to be made by the last working day before the 22nd?. The next time this happens in 2022 is October when the 22nd?falls on a Saturday so you need to ensure the payment is made on Friday 21??October.
Pro advice.?If you pay early or late, make sure you add four extra numbers to the end of your 13-character accounts office reference to indicate the month and year the payment refers to. HMRC has a calculator that lets you know what reference to use for payments outside the expected schedule (see?Follow up?).
PAYE less than ￡1,500 per month??If, over the course of the tax year, you expect the average monthly PAYE payment will be less than ￡1,500 (less than ￡18,000 for the full tax year) you can make PAYE payments quarterly after months 3, 6, 9 and 12. The total that HMRC uses to calculate this threshold includes income tax, NI contributions, student loan and construction industry scheme deductions.
Interest on overdue PAYE
If you’re late paying the PAYE, then the first consequence is that you’ll incur interest on the overdue PAYE. From 5?July?2022 the interest rate for late payments is 3.75% and this is calculated daily.
What are the late payment penalties?
The penalty regime for late paid PAYE/NI is under?Schedule 56?2009 Finance Act?and applies from 6?April?2010.
Basically, the rules allow for one PAYE late payment per tax year without charging a penalty, but if payments are late on two or more occasions the penalties range from between 1% and 4%. Additional late payment penalties may be charged where payments are outstanding for more than six months and again if any payment is still outstanding after twelve months.
The range of penalties based on the number of late payments in the tax year is as follows:
No. of times payments are latePenalty %1No penalty2-41%5-72%8-103%11 or more4%
Example.?Acom Ltd is late in paying its PAYE due for June, July, and August 2022 of ￡15,500, ￡16,000, and ￡16,250 respectively. There’s no penalty on the June payment so the penalty is 1% of the PAYE due for July and August, totalling ￡32,250?= ￡322.50.
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Example.?Acom Ltd also fails to make its PAYE payments for January, February, and March?2023 on time. That makes six defaults in all, but the first, i.e. June?2022, is not counted. The penalty is therefore 2% of the PAYE due for five months that were paid late less any penalty charged earlier for the same year. So if the total PAYE due for July and August?2022 and January to March?2022 was ￡90,000, the second penalty will be ￡1,800 (￡90,000?x 2%) less the ￡322.50 already charged = ￡1,477.50.
Pro advice.?If you’re a smaller or medium-sized employer, you may find that a whole year or longer has elapsed before you’re aware that a penalty has been charged - penalties are often only levied after the end of the tax year, so in the above example Acom Ltd might only receive one penalty notice for ￡1,800.
More than six months late.?If Acom Ltd had still not paid the PAYE for June, July, and August?2022 after six months, the payments due would all have been outstanding for more than six months and an additional 5% penalty would be charged. In this case, the first default is not ignored so as the total PAYE due for the three months was ￡47,750 a further penalty of ￡2,387.50 (5% x ￡47,750) would be charged in addition to the other penalties. If payment is still outstanding after twelve months, a further 5% penalty will be charged.
Pro advice.?Always make the PAYE payment as soon as possible - don’t pay off penalties from earlier years in preference to paying the current PAYE due.
Did you have a reasonable excuse?
Penalties are automatic and computer-generated but you can appeal if you had a reasonable excuse for making a late PAYE payment.
What’s a reasonable excuse??There is no definition of a reasonable excuse - it’s something which has to be considered on a case-by-case basis. The reasonable excuse only protects you from the penalty - it does not absolve you from the tax or the interest. There are various tests of reasonableness, but they all amount to the same thing. The employer has to behave in a way that any reasonable responsible person would behave in connection with their payroll obligations. Typical examples of reasonable excuse include the death or serious illness or unforeseen events such as theft, fire or flood.
Pro advice.?Lack of funds is not generally a reasonable excuse unless attributable to events outside of your control.
How to appeal.?You can appeal online using HMRC’s PAYE for employers service. Once you’ve logged in, select?“Appeal a penalty”?. You’ll receive an immediate acknowledgement when you submit your appeal.
Pro advice.?If payment is made even one day late, document the reasons why at the time so you have evidence to challenge any penalty charged.
Insufficient funds
Where you are unable to make payment because, for example, a large customer is late paying you, you can apply to HMRC’s Payment Support Service for a time to pay (TTP) agreement (see?Follow up?).
A TTP agreement allows for the outstanding PAYE to HMRC to be paid back in monthly instalments, typically over a period of up to twelve months. Although depending on your business circumstances and affordability some arrangements can be agreed over longer periods.
No penalties.?The big advantage of agreeing a TTP rather than simply not paying is that as long as you have an agreement in place before the deadline for late payment penalties to be charged, you won’t have to pay any penalties.
Pro advice.?Try to negotiate a TTP agreement as soon as you think payments might be late.
HMRC will expect you to tell it how much you can afford. You should expect to pay a fixed amount each month.
Pro advice.?Don’t be overambitious; it’s better to take longer to pay than to commit to something unrealistic and then not be able to meet the agreed amounts and payment schedule.
Pro advice.?If your business has multiple tax debts you may need to prioritise which you pay and which you seek time to pay for. It can be harder to negotiate arrangements for PAYE and VAT than for corporation tax so consider whether you can pay the PAYE and ask for TTP on any corporation tax due.
If this is the first and only time in the tax year that you intend to pay the PAYE late, it isn’t classed as a default so there’s no penalty as long as you make the payment within six months of the due date. However, you will incur interest at a rate of 3.75% p.a. on the unpaid amount. If you think several PAYE payments might be late, try to negotiate a time to pay agreement with HMRC before the due date to avoid future penalties.
Courtesy of Tax Essentials for Advisors