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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
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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): Penalties: monthly and quarterly tax periods - default penalty

An employer incurs an initial default penalty if they fail to pay an amount of tax in full on or before the due date. The penalty is incurred on the penalty date.

The penalty applies to any failures that are also defaults.

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

Calculate the default penalty
Table of default penalty rates
Notes

Calculate the default penalty

To calculate the default penalty for tax unpaid at the due date, follow these steps.

  • Take the number of failures relating to a tax year and deduct the first one to give the number of defaults for the year.
  • Use the table below to find the penalty rate for the year, which depends on the number of defaults for that tax year.
  • Apply the percentage from the table to the amount of tax in the default.

Be careful to apply the percentage only to the amount of tax in the default. This means separate defaults in a tax year will have penalties charged at different rates.

Note: Before 6 April 2014 the highest penalty rate applied to the amount of tax in the total of all the defaults. However, to align the penalties with RTI, from 2014-15 each default incurs a penalty calculated using the percentage rate based on the number of defaults for that tax year.

When establishing the penalty rate for subsequent defaults, all earlier defaults still count as defaults even if the amount of tax was paid before the subsequent default occurred.

See more examples at CH152700.

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Table of default penalty rates

Number of failures in relation to the tax year Number of defaults in relation to the tax year Default penalty rate for the amount of tax in the default
     
1   n/a
2 1 1%
3 2 1%
4 3 1%
5 4 2%
6 5 2%
7 6 2%
8 7 3%
9 8 3%
10 9 3%
11 10 4%
12 11 4%

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Notes

Remember that the first failure relating to a tax year does not count as a default for that tax year, so does not attract a default penalty. For example, if there are 8 failures and therefore 7 defaults, the tax in the first 3 defaults will incur a penalty of 1%, the tax in defaults 4 to 6 will incur a penalty of 2% and the tax in the 7t h default will incur a penalty of 3%.

A small employer who makes quarterly payments can only have a maximum of 4 failures in a year. But see CH152600 for when the amount is outstanding for 6 months or more and the employer can incur further penalties.

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

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.

FA09/SCH56/PARA5

FA09/SCH56/PARA6