CH156650 - Penalties for Failure to Pay on Time: Penalties on tax deferred: Example

Example

Esme is an employer with a static workforce and she is due to pay £25,000 per month under the PAYE Regulations for 2011/12, a total of £300,000.

Esme makes the payments for April, May, June and July on or before the dates determined by the PAYE Regulations. She then experiences financial difficulties and fails to make payments for August (due 19 September) and September (due 19 October). August was the first failure so there is no default penalty. September is the second failure and the first default so the penalty so far is £250 (£25,000 x 1%).

On 31 October Esme approaches HMRC to discuss a deferral arrangement to cover the arrears of £50,000 for August and September and the September penalty of £250 - a total of £50,250. She reaches an agreement under the terms of which she is to make a payment of £6,850 on 15 November, followed by 7 monthly payments of £6,200.

The deferral period is 31 October 2010 to 15 June 2011 (date on which the final payment of £6,200 is due). So, provided Esme fully complies with the terms of the deferral agreement, and makes the monthly payments for October onwards on time, she won’t have to pay any further penalties for failure to pay on time for 2011/12.

Without the deferral agreement, Esme would have been liable to a 5% penalty on the amount of the August and September payments that was unpaid 6 months after the penalty date, see CH152600.

If Esme fails to comply with the terms of the deferral arrangement, and hasn’t approached HMRC to vary the agreement, she becomes liable to the penalties that have been deferred as well as the penalty incurred before the agreement to defer.

FA09/SCH56/PARA10