CH152100 - Penalties for Failure to Pay on Time: Rules for specific taxes: Pay As You Earn (PAYE) and National Insurance Contributions (NIC): Overview
The penalty rules for failure to pay PAYE and NIC on time start on 6 April 2010 and apply to payments relating to the tax year 2010-2011 onwards on the failure of a person to make certain payments in full and on time. Examples of these payments include
- PAYE
- PAYE Settlement agreements (PSAs)
- Class 1, 1A and 1B NIC contributions
- Regulation 80, Regulation 13 and section 8 decisions, and
- Student Loan repayments collected under PAYE.
Penalties apply each time n employer makes a default in relation to a tax year. An employer makes a default in relation to a tax year if they fail to make a payment in full on or before it becomes due and payable. However the first late payment for a tax year does not count as a default and does not incur a default penalty.
The penalty regime is progressive, which means that continuing failures give rise to further penalties and an increased penalty rate.
To calculate the penalty you need to know the due date, penalty date and the date on which the amount was paid. The penalty date is normally the day after the date by which the amount should have been paid, but see CH152750 for annual tax periods such as Class 1A/1B NIC, PSA’s and formal determinations.
Penalties for failure to pay PAYE and NIC on time are
- for monthly and quarterly tax periods, a default penalty at varying rates for the initial failure and two further penalties of 5% each if the person has still not paid the amount at 6 or 12 months after the penalty date
- for annual tax periods, an initial penalty of 5% and two further penalties of 5% each if the person has still not paid the amount at 5 or 11 months after the penalty date.
As you can see, for annual tax periods, the legislation gives penalty dates that are a month earlier than they are for monthly and quarterly tax periods.
A person is treated as having paid the full amount of tax on time if the difference between the amount paid by the due date and the tax due is £100 or less. This person would not be liable to a penalty for failing to pay on time.
Payments due are net of any statutory payments that the employer can legitimately recover.
In relation to PAYE and NIC the penalty regime covers liabilities that arise from the following.
- Amounts payable under the 2003 PAYE Regulations, see CH152200.
- Amounts of PAYE payable under a determination in the absence of a return, see CH152250.
- Amounts of PAYE due but not paid following a determination under the PAYE regulations, see CH152300.
- Amounts payable under a PAYE Settlement Agreement, see CH152350.
- NIC contributions that are payable in accordance with the Social Security (Contributions) Regulations 2001.
- Student Loan deductions.