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HMRC internal manual

Compliance Handbook

Penalties for Failure to Pay on Time: Overview

The law requires a person to pay their tax, or tax which they are required to send to HMRC, on or before the due date. When a person fails to pay the full amount of tax by the due date, they may become liable to a penalty or penalties.

Penalties for failing to pay on time currently only apply to

  • Pay as you Earn (PAYE), National Insurance Contributions (NIC) and Student Loan deductions
  • Construction Industry Scheme (CIS)
  • Bank Payroll Tax (BPT)
  • Registered Pension Scheme (RPS)
  • Income tax and Capital Gains Tax (IT & CGT),
  • Machine Games Duty (MGD) and
  • Annual Tax on Envelope Dwelling (ATED).

For the purposes of this guidance ‘tax’ includes PAYE, NICs and other duties, and ‘assessment’ includes determination and decision.

A person may be liable to a penalty if they fail to pay on time, unless they

  • have a reasonable excuse for not doing so, and
  • make payment in full without unreasonable delay after the excuse ends.

The penalty is calculated differently depending on the tax involved and the length of time that the tax is outstanding. Broadly the types of penalty are

  • a default penalty for the basic failure to pay in full and on time, and
  • one or more further penalties if the failure continues beyond 6 or 12 months.

The amount of the penalty is a percentage of the tax that is unpaid at the due date. The calculation is different for annual tax periods and monthly or quarterly tax periods. The penalty regime is progressive, which means that an amount of unpaid tax may attract more than one penalty if the failure continues beyond certain dates.

When a person has incurred a penalty for failure to pay in full and on time, we issue a penalty assessment. The person can appeal and is entitled to a review. Where necessary the appeal will be heard by the tribunal.

In certain circumstances, we can agree to defer a penalty or agree to a special reduction, see CH170000.

The penalty provisions in Sections 100 to 103 of TMA 1970 do not apply to a penalty under Schedule 56 FA 2009.