Business tax – guidance

What happens if you don't pay PAYE and National Insurance on time

Information for employers about late payment penalties and how to avoid penalties in the future.

What penalties are charged

HM Revenue and Customs (HMRC) charges late payment penalties on PAYE amounts that aren’t paid in full and on time.

These include:

  • monthly, quarterly or annual PAYE
  • student loan deductions
  • Construction Industry Scheme (CIS) deductions
  • Class 1 National Insurance contributions (NICs)
  • annual payments of employers’ Class 1A and Class 1B NICs
  • determinations made by HMRC where it appears that there may be further tax payable
  • decisions, for example about a person’s liability to pay NICs and the amount payable

How much you pay

Late monthly and quarterly PAYE payments

! The first failure to pay on time does not count as a default.

Number of defaults in a tax year Penalty percentage applied to the amount that is late in the relevant tax month (ignoring the first late payment in the tax year)
1 to 3 1%
4 to 6 2%
7 to 9 3%
10 or more 4%

Daily interest will continue to accrue on all unpaid amounts from the due and payable date to the date of payment.

Additional penalties

You will be charged a late payment penalty if you pay less than is actually due. If you still haven’t paid a monthly or quarterly payment in full after 6 months, you will be charged an additional penalty of 5% of the amounts unpaid. A further penalty of 5% will be charged if you have not paid after 12 months.

These additional penalties apply even where only one payment in the tax year is late.

End of year adjustments

If you pay an adjustment after the end of the year under a special arrangement eg, the ‘Intermediaries’ rules (these are often referred to as IR35) or a formal modified PAYE arrangement known as ‘Employment Procedures Appendix 6’, you won’t be charged late payment penalties, providing you keep to the terms of the arrangement.

Amounts due annually or occasionally

You may have to pay a penalty if you haven’t paid the full amount by the date known as the ‘penalty date’.

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. For these payments you may have to pay:

  • a 5% penalty if you haven’t paid the full amount within 30 days of the due date
  • an additional 5% penalty if you haven’t paid the full amount within 6 months of the due date
  • a further 5% penalty if you haven’t 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.

If you get a penalty

A notice will include what you owe, how to pay and what to do if you don’t agree with HMRC’s decision to charge you.

Pay the penalty within 30 days of getting the notice - you’ll be charged interest if you don’t.

From April 2015, you will be able to appeal online against the late payment penalties for tax year 2015 to 2016 onwards, using HMRC’s Online Service. In some cases, HMRC will accept and settle the appeal automatically. These are some of the reasons you can give as grounds for appeal:

  • data on the returns was incorrect
  • death/bereavement
  • fire/flood/natural disaster
  • ill health
  • IT difficulty
  • no longer have any employees
  • no payments to employees
  • paid on time
  • theft/crime
  • time to pay arrangement in place
  • other

You can also send your appeal in writing to:

HM Revenue and Customs
Southend Debt Management
6th Floor Alexander House
21 Victoria Avenue
SS99 1AA

The Notice of Penalty Assessment will contain a ‘Unique ID’ for each penalty shown on the notice. You must include the Unique ID to identify which penalty you wish to appeal against.