'Ask the Experts'
04 May 2010
I have recently looked on the HMRC website and have noticed that there are new penalties for employers and contractors that do not pay on time for certain payments – I am an employer how will these changes affect me and my business? Alan
Dear Alan
From 6 April 2010, HMRC have introduced a new penalty regime for employers and contractors who do not pay, on time and in full, the following:
• PAYE;
• National Insurance Contributions (Class 1 Employees and Employers, and annual payments for employer’s Class 1A NIC and PAYE Settlement Agreement liabilities);
• Construction Industry Scheme deductions; and
• Student Loan Deductions.
Prior to 6 April 2010 the situation was different and for example interest was only charged on PAYE and Class 1 NIC outstanding from 19 April after the end of a tax year.
Due to interest only being charged from 19 April following the end of the tax year, some employers did not make the required PAYE and Class 1 NIC payments each month, or per quarter (if monthly liabilities average less than £1,500 and quarterly payments have been applied for); instead paying a much larger balancing sum by 19 April following the end of the tax year, still avoiding any interest for the year.
Penalties for late or non submission of documents continue to be dealt with separately.
In 2009 HMRC introduced new harmonised rules for interest on late payments of tax and National Insurance. The rules apply from 6 April 2010 as stated above, although HMRC do not currently have a system in place to verify that the correct remittance has been made each month. However this information could be requested at the end of the year, or discovered in a HMRC PAYE compliance visit.
HMRC guidance states that for 2010-11 they will send notifications of late payment penalty charges after the end of the year. HMRC has up to two years after the late payment has occurred to issue a penalty letter. They also state that it is the taxpayer’s responsibility to pay on time and they will not issue reminder letters.
The new penalty charges apply as follows:
1 late payment: No penalty provided they are less than 6 months late.
2-4 late payments: 1% of total amount late in the tax year (ignoring the first payment).
5-7 late payments: 2% of total amount late in the tax year (ignoring the first payment).
8-10 late payments: 3% of total amount late in the tax year (ignoring the first payment).
11 or more: 4% of total amount late in the tax year (ignoring the first payment).
If the amount is not paid after 6 months a 5% penalty may be imposed, a further 5% penalty may be imposed if payment is not made after 12 months. These penalties apply even where only one payment in the tax year is late.
It is therefore important to ensure that all payments from 6 April 2010 are made on time and in full.
In addition for contractors within the Construction Industry Scheme these new rules may be even more problematic as they could influence gross payment status where applicable.
HMRC have provided guidance about the new penalties that may be charged on late payments for periods starting on or after 6 April 2010 and this is available on their website at: http://www.hmrc.gov.uk/paye/problems-inspections/late-payments.htm and www.hmrc.gov.uk/paye/file-or-pay/payments/deadlines.htm.
For more information on these new regulations or any other tax queries you have contact Claire Avery Tax Manager on 01635 265265 or via email c.avery@griffins.uk.