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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
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Debt and return pursuit: PAYE: introduction to PAYE: penalties

There are three main automatic penalties associated with pre-RTI PAYE end-of-year - Interim, Final and Non Online Filing. For continued non-filing of the Employer Annual Return, there are also Regulation 80 and duty geared penalties. All penalties are raised through the Employer Compliance Service (ECS) and passed to SAFE.

Employers are issued with penalty notices and have 30 days in which to appeal. After the appeal period has expired, SAFE will send any outstanding penalties to IDMS to be dealt with according to business rules.

Interim penalties

Interim penalties are issued to employers who have not sent their complete Employer Annual Return. They are charged under Section 98A (2)(a) TMA 1970 if the return remains outstanding after the due date. They cover up to 12 months from the due date of 19 May and are issued four monthly after the end of the return year, usually in September, January and May.

The penalties are £100 for each:

  • group of 50 employees
  • month (or part of) the return(s) is outstanding.

The number of employees is based on the count of P14s recorded on EBS for the latest year and for penalties up to 2006-07 only, the number of subcontractors included on form CIS 36. If no details are available, for example new employers, 1 group of 50 employees is used.

Example

An employer had 60 employees for 2007-08, and did not submit a 2008-09 return by 19 September 2009 when the first interim penalties were issued.

The penalty would be £100 x 2 (for up to two groups of 50 employees) x 4 months outstanding (19 May - 19 September) = £800.

Final penalties

Final penalties are issued to employers who have sent their complete Employer Annual Return late. These penalties are charged under S98A (2)(a) TMA 1970 when the return is received. If an employer submits their return late but before being charged interim penalties, only a final penalty will be charged otherwise interim and final penalties can be charged up to a maximum of 12 months.

The penalties are £100 for each:

  • group of 50 employees
  • month (or part of) the return(s) is outstanding.

The number of employees is based on the count of P14s recorded on EBS for the latest year and, for penalties up to 2006-07 only, the number of subcontractors included on form CIS 36.

When calculating a final penalty, ECS compares the total penalty to the tax and NIC charge from the P35. Where the total tax and NIC charge is:

  • equal to or more than the penalties, the employer is charged the whole of the penalties
  • more than £100 but less than the penalties, the employer is charged penalties equal to the total Tax and NIC charge
  • £100 or less (including P35 Nil returns (No charge P35), the employer is charged penalties of £100 only.

ECS will reduce the final penalty by the amount of interim penalties already charged (if any) before its issue. If however interim penalties are more than the final penalty, ECS will automatically reduce interim penalties to equal the final penalty amount.

Examples

Final penalty only - an employer had 60 employees for 2007-08, and submitted their 2008-09 return on 30 June 2009 before interim penalties were issued. The total Tax and NIC charge is £600.

The penalty would be £100 x 2 (for up to two groups of 50 employees) x 2 months outstanding (19 May - 30 June) = £400. The Tax and NIC charge is greater than this so the full penalty would be charged.

Interim and final penalties: an employer had 60 employees for 2007-08, and submitted their 2008-09 return on 30 October 2009, after the first interim penalties issued on 19 September 2009. The total Tax and NIC charge is £200

The interim penalty would be £100 x 2 (for two groups of 50 employees) x 4 months outstanding (19 May - 19 September) = £800.

The final penalty would be calculated as £100 x 2 (for 2 groups of 50 employees) x 6 months outstanding ie £1,200. But as interim penalties had already been issued for £800, this would be reduced to £400 (£1,200 less £800). And as the Tax and NIC charge is only £200 for the year, the total penalties could not exceed £200. So the Interim penalties already charged would reduce from £800 to £200 and no final penalty would be issued.

Regulation 80 determinations

Legislation

Regulation 80 determination: Regulation 80 of the Income Tax - Pay as You Earn Regulations 2003.

Raising Regulation 80 determinations

Customer Operations will only consider raising Regulation 80 determinations where the expected unpaid PAYE amount is under £5,000. For further information, see PAYE54000.

Duty geared penalties

These penalties are charged when the return is outstanding more than 12 months after the due date.

Legislation

S98A(2)(b) TMA 1970.

Raising duty geared penalties

Employer Compliance will only consider raising duty geared penalties where the expected unpaid PAYE amount is over £5,000 and the penalty would be £250 or more. For more information, see COG914050 and PAYE51050.

Non online filing penalties

Non online filing penalties are issued to employers who are required to file their complete Employer Annual Return (that is P35 and all P14s) online but file by paper or magnetic media instead. These are charged irrespective of whether they filed by the due date or not.

These penalties are charged under Income Tax (PAYE) Regulations 2003 -Part 10 Chapter 4 Para 210, and are in addition to any interim and final penalties.

The amount of the penalty will depend on the number of P14’s on the employer’s return

Number of employees Penalty
   
50 - 249 £600
250 - 399 £900
400 - 499 £1,200
500 - 599 £1,500
600 - 699 £1,800
700 - 799 £2,100
800 - 899 £2,400
900 - 999 £2,700
1,000 or more £3,000

Penalty appeals and discharges

Employers (or agents if authorised to act on their behalf) have 30 days from the date of the penalty notice to appeal. The appeal must be in writing and sent to the issuing Customer Operations office.

Customer Operations will stand over any penalty that they have accepted an appeal against and this will suspend any recovery activity.

When the appeal has been settled, the penalty will either be discharged in full or part, or the stand over will be cancelled in order to release the penalty for collection.