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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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Charging penalties: introduction: penalties for failure to file PAYE Real Time Information returns on time - FA09/Sch55 - manual process: 3 month extended failure penalty - manual process for charging extended failure penalty

CH401255 explains the fixed penalty payable when an employer fails to file one or more Real Time Information (RTI) returns by the filing date.

An employer may also be liable to a further penalty where the failure to make a return continues beyond the period of 3 months beginning with the date after the filing date. This is known as an extended failure.

Under RTI, if an employer fails to make a return, the law says the employer must provide the information on their next return. So, where a return has not been made but the employer has provided all the outstanding payments on a later return (Full Payment Submission (FPS) or Earlier Year Update (EYU), HMRC no longer needs the earlier return and will not charge an extended failure penalty for the missing return.

The penalty is discretionary and will only be charged in the most serious cases or where there have been persistent failures to file RTI returns.

The decision whether or not to charge a penalty will be based on the individual facts of each case.

Examples of where penalties may be appropriate are

  • non-registered employers
  • registered employers who persistently fail to make their filing obligations.

Where a penalty is considered appropriate

  • a penalty can be charged for each extended failure in a tax year
  • the penalty is 5% of the amount of PAYE tax and Class 1 National Insurance Contributions (but not Student Loan Deductions) which should have been shown on the missing return or returns
  • there are no deductions for the type or quality of disclosure
  • the law allows HMRC to charge a separate penalty for each extended failure in a tax year or a single penalty for all of the extended failures in a tax year to date.

Note: Where a penalty is to be assessed before the return has been filed, Paragraph 24 of Schedule 55 allows you to determine the liability which should have been shown in a return ‘to the best of HMRC’s information or belief’, see CH63560.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Penalty process

Before you seek to charge an extended failure penalty you must check whether or not the information on the missing return or returns has been included in a later return. This may be on an FPS or EYU.

If you consider a penalty is appropriate you must first seek authorisation from the Authorising Officer, see CH407050. The caseworker must not approve their own penalty assessments.

To calculate the extended failure penalty you will need to establish the amount of liability that should have been shown in the relevant return. The penalty is 5% of the total PAYE tax and Class 1 National Insurance Contributions (but not Student Loan Deductions) which should have been shown in the return or returns.

Once you have calculate the penalty you should

  • complete an AO Report Form - Authorisation Stencil (available via SEES Forms and Letters) providing evidence to show that the employer is a persistent late filer and why you consider a penalty is appropriate
  • refer the case to the Authorising Officer.

The Authorising Officer will

  • consider the information provided
  • authorise the penalty (if appropriate)
  • refer the papers back to you.

If the Authorising Officer approves an extended failure penalty then you must give the employer notice specifying the date from which the penalty or penalties will be charged and warning them that you will assess the penalties if they do not provide all of the outstanding information on an FPS (for the current year) or an EYU (for earlier years) within a specified time. You do this by sending the employer the RTI Schedule 55 Penalty Explanation Letter (available via SEES Forms and Letters).

  • If the employer provides all of the outstanding information within the specified time you must not assess the penalties.
  • If the employer fails to provide the outstanding information (and you do not agree an extension for them to do so) you must assess the penalties.

Where penalties are payable you can either bring into charge by formal assessment or by including in a contract settlement if it is more cost effective and administratively convenient to do so.

When proceeding to raise a formal penalty assessment

  • prepare the Sch55 Extended Failure Penalty Notice and Schedule (available via SEES Forms and Letters)
  • complete a Manual Penalty Stencil
  • email the stencil, penalty notice and schedule to the SAFE officer who will create the charge on SAFE using the charge Non ECS PAYE EOY Penalty and return the stencil to you advising the SAFE reference
  • use the SAFE reference to create a payslip
  • issue the payslip, notice of penalty assessment and penalty schedule
  • BF the case for 30 days.

If the employer appeals against any penalty determinations you should follow the guidance at COG914305 and CH64500.