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HMRC internal manual

Compliance Handbook

Penalties for Failure to Pay on Time: Rules for specific taxes: Pay As You Earn (PAYE) and National Insurance Contributions (NIC): Penalties: monthly and quarterly tax periods - overview

Where the employer has monthly or quarterly tax periods the total penalties for a tax year consist of

  • a default penalty for tax unpaid at the penalty date, see CH152550, and
  • two further penalties for any amount of tax which remains unpaid at 6 and 12 months after the penalty date, see CH152600.

So a continuing failure to pay can incur all of these penalties on the same unpaid tax.

It is important to distinguish between

  • the due date - the date when the employer needs to pay the tax, see CH152200, and
  • the penalty date - which for monthly and quarterly tax periods is the day after the due date and the first date on which a penalty is chargeable for a tax period.

To calculate the default and further penalties due for a tax year, you need to know the following.

  • The number of failures relating to the tax year. A failure is a failure to pay the full amount of tax due by the due date.

The first failure in relation to a tax year does not count as a default for the tax year and does not attract a default penalty.

All failures where payment continues not to be made past certain dates, whether or not they attract a default penalty, attract one or two further penalties.

  • The number of defaults in the year. A default is any failure to pay the full amount of tax by the due date, except the first such failure in the year.
  • The amounts unpaid for each default, even if they have subsequently been paid.
  • The penalty rate to use for the amount unpaid for each default.
  • The amounts of any payments still unpaid for each tax period at 6 months and 12 months after the penalty date.

A payment is treated as the ‘full amount’ if the difference between the tax due and the amount paid is £100 or less.

The operational guidance will tell you more about how to obtain this information. You can then calculate any penalties.

Note that late payment penalties for failing to make monthly and quarterly PAYE and NIC payments or student loan deductions by the due date are calculated using the same method as the late payment penalties for CIS payments, see CH153200.

Also note that PAYE, NIC, SL and CIS are treated as the same tax when calculating the default penalties for failing to pay on time. This means that where a person is liable to make PAYE, NIC, SL payments and also CIS payments, then a failure to pay one or more elements of the combined amount by the due date counts as one failure. The late payment penalty for a default is calculated on the combined amount of PAYE, NIC, SL and CIS in the default. See CH152700 for an example.