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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Debt and return pursuit: PAYE: e-payment surcharge: how surcharge is calculated


For tax years 2004-05 onwards large employers are mandated to file and pay online. For tax years 2004-05 to 2009-10 inclusive there was a surcharge regime for large employers who did not pay on time.

A new penalty regime was introduced by Schedule 56 Finance Act 2009 and applies from April 2010 to tax years 2010-11 onwards. As a result surcharges will not be raised on late payments after 2009-10 tax year.

Large employers who defaulted in 2009-10 or earlier will still face surcharges, but surcharges will be not be charged on any late or partial payments for tax year 2010-11 onwards.

BROCS is being updated to stop surcharges being raised at the end of tax year 2010-11.

Basis of calculation

The amount of surcharge is based on a percentage of the total amount payable for the year shown on the employer’s annual return, form P35.

Each default within a surcharge period attracts a different percentage rate which increases as the number of defaults continue within a surcharge period.

The actual percentage used for the annual surcharge calculation is the sum of the total of the percentages that apply to each of the defaults within the year.

Start date

The surcharge period starts at the point in the deduction year in which the default first occurs and does not end until there has been a complete tax year with no defaults.

In practice once default has occurred it could take an employer as long as 23 months to be completely clear of a surcharge. For example if the employer defaults in May 2004 (tax year 2004/2005) they will need to ensure they do not default again in the remainder of tax year 2004/05 and ensure they do not default at all in tax year 2005/2006.

Time limit for issue of notice

The time limit for issuing surcharge notices is within six years of the end of the year to which it relates.

Educating the employer

Some large employers are still not aware of the significance of the surcharge period. There are concerns that some believe that the first 2 defaults in each year attract a 0.00 surcharge percentage and consequently no surcharge.

While in contact with a large employer where possible ensure that they (financial directors, payroll and company accountants) are aware of the surcharge period rules.

BROCS de minimus limit

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

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