October 29th, 2012 / Insight posted in

Penalties for late tax payment

JL writes: I have recently been hit with a large bad debt which has knocked my cash flow considerably. As a result, I am going to struggle to pay the company’s PAYE and NI liability, which is due later this month. I am confident that I will be able to trade out of my current difficulties and just need some time to recover from the recent bad debt. What will be the consequences of not paying the PAYE when it is due?

HM Revenue & Customs (HMRC) is likely to chase your outstanding PAYE liability as soon as they realise it has not been paid, writes Chris Lane, a partner at Kingston Smith LLP. Depending on how much time you need, it is possible to speak to HMRC, specifically the Business Payment Support Service team, and agree a short-term payment plan. Their contact details can be found on the HMRC website at www.hmrc.gov.uk/payinghmrc/problems/bpps.htm. You also need to be sure that your business is not trading insolvently and that you can trade through your current problems.

HMRC has recently introduced penalties and interest for the late payment of PAYE and NI. The late payment penalties will be charged as a percentage of the outstanding liabilities. For the first late payment in any tax year there will be no penalty, as long as the late payment is less than six months overdue. For the second, third and fourth late payment, a penalty of 1% of the total amount paid late in the year, including the first late payment, will be charged.
For the fifth, sixth and seventh time, a 2% penalty will be charged. This will increase to 3% for the eighth, ninth and tenth time, and 4% for the eleventh and twelfth time.

Therefore, employers who pay each monthly liability late throughout the year will be charged a penalty of 4% of the total PAYE and NI liability for the year, which could add up to a substantial financial penalty.

In addition, interest will be charged on a daily basis on any late payment at the current rate of 3%. Interest will run from the due date to the date a cheque or cleared funds are received. It will be calculated at the end of each tax year once the annual P35 return is submitted and the full tax liabilities are known for the year.