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HMRC internal manual

Compliance Handbook

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Penalties for Failure to Pay on Time: Rules for specific taxes: Pay As You Earn (PAYE) and National Insurance Contributions (NIC): Obligations: PAYE Settlement Agreements (PSAs) - Amounts of PAYE and Class 1B NIC payable

PAYE Settlement Agreements

PAYE Settlement Agreements are legislated for in Part 6 of the Income Tax (PAYE) Regs 2003 and guidance is available in the PSA Manual. They are the responsibility of the Employer Support Team (EST) within the Individuals & Public Bodies Customer Group for Local Compliance and LBS DPT (Dispensation & PSA Team) for LBS.

These arrangements enable employers to settle, in a single payment, the income tax liability on usually minor benefits in kind and expenses payments given to their employees.

In accordance with Regulation 109(2) of the Income Tax (PAYE) Regulations 2003 the due date for payment is

  • 22 October where paid by an approved electronic payment method
  • otherwise 19 October following the year to which the PSA applies.

Payment not made by due date (no determination)

The employer may miss the due date for payment of the PSA. Although it may be paid before we take formal action to recover the amounts due the employer is still liable to penalties for late payment.

In accordance with item 2 of the table in Schedule 56, the penalty date is the day after the due date.

Example 1

Bell & Morton Ltd enter into a PSA for the year 2010-11. The amount of the PSA is £60,000 to be paid by 19 October 2011.

The employer does not pay the amount owing by the due date. Full payment is finally received on 9 November 2011.

The due date is 19 October 2011.

The penalty date is 20 October 2011.

The penalty due is £60,000 x 5% = £3,000.

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Payment not made by due date (determination made)

Regulation 110(1) of the Income Tax (PAYE) Regulations 2003 applies if it appears to us that there may be an amount payable under Regulation 109(1) for any tax year which has not been paid by the due date as defined above.

Regulation 110(2) allows us to determine the amount payable.

In accordance with Regulation 110(4), the due date is 30 days from the date of the determination.

In accordance with item 24 of the table in Schedule 56, the penalty date is the later of

  • 31 days after the date by which the amount should have been paid, and
  • 31 days after the date on which the determination is made.

Example 2

Bell and Morton Ltd continue their PSA into 2011/12. Based on last year’s experience they ensure that they pay their liability by 19 October 2012. However we decide that in view of the previous year’s failure we will inspect the company’s records and this reveals an underpayment of £5,000.

We raise a determination, which is issued on 17 January 2013. The determination is paid in full on 31 March 2013.

The due date is 16 February 2013.

The penalty date is 31 days after the date by which the amount should have been paid, that is 18 March 2013.

The penalty due is £5,000 x 5% = £250.

Class 1B NIC

Regulation 67B of the Social Security (Contributions) Regulations 2001 provides that class 1B NIC (and Class 1A NIC) are treated as if they were an amount of tax falling within item 3 of the table in paragraph 1 of Schedule 56. This means the penalty date is 31 days after the due date.

FA09/SCH56