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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
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Debt and return pursuit: PAYE: penalties for late payment: penalty rates

How and when penalties are charged

The penalty depends on a number of factors such as type of liability, whether the employer pays monthly, quarterly or annually, the number of late-payments (known as defaults except for the first late-payment in the tax year) and how late the payments are. The table below shows the penalty rates for monthly, quarterly and annual payers.

For in-year PAYE, the first failure to pay on time (in other words, the first month or quarter in the tax year not fully paid on time), does not count as a default and is exempt from a late-payment penalty but if it is still unpaid 6 or 12 months later then 6 and 12 months penalties can apply.

For employers paying their in-year PAYE annually, their first late-payment would not be charged a late-payment penalty (as the first late-payment in the year does not count as a default) but 6 and 12 month penalties would still apply if the payment was very late.

No such exception applies to employers paying annual charges such as Class 1A NIC or Reg 80 determinations late; they can be charged late-payment penalties, and if they pay very late 6 and 12 month penalties.

Percentage rates

The table below shows the penalty rates for monthly, quarterly and annual payers.

Late payment penalty      
       
In-year PAYE Number of defaults in a tax year Penalty percentage Amount to which penalty percentages apply
Monthly payers   No late-payment penalty Note: The first failure to pay on time does not count as a default.
  1-3 1% Total amount that is late in the tax year (ignoring the late payment(s) for the earliest late paid month in that tax year).
  4-6 2%  
  7-9 3%  
  10 and over 4%  
Quarterly payers   No late-payment penalty Note: The first failure to pay on time does not count as a default
  1-3 1% Total amount that is late in the tax year (ignoring the late payment(s) for the earliest late paid quarter in that tax year).
Annual payers Default does not apply No late-payment penalty unless paid over 6 and 12 months late, then 5% applies. Employers who only make annual deductions of PAYE are allowed to pay annually. If they pay late, this would be their first failure to pay on time which effectively means they are only eligible to be charged 6 and 12 month penalties of 5% each.
See Annual payers section and Examples 3 and 4 below for more information.        
  Annual charges (such as Reg 80s or Class 1A NIC) Default does not apply 5% Total amount unpaid on the penalty date. Note: The penalty date varies according to the type of payment.
  Six month and twelve month penalties      
  All employers Any payment more 6 months late 5% An extra 5% of any amount unpaid after six months. For in-year PAYE, this applies to all periods including the first failure to pay on time.
  All employers Any payment more 12 months late 5% A further 5% penalty of any amount unpaid after twelve months. For in-year PAYE, this applies to all periods including the first failure to pay on time.

Note: This excludes any months included in a TTP agreement applied for before the amount became due for penalties.

Annual payers

By concession, employers are only allowed to pay annually if they are either a limited company and the only employees are Directors who take an annual salary, or unusually employers who only pay their employees once a year.

Some employers are noted as annual payers even though they pay monthly or quarterly.

If you come across such an employer, you should

  • treat them as:

    • quarterly (if they pay under £1,500 on average per month) or
    • monthly if appropriate and
  • amend their EMY / cancel their annual payment notation so if they pay late in future, their debt can be collected on time.

Examples

Example 1: Monthly payer - Employer paid months 1, 2, 3, 4, 5 and 6 thirteen months late; all other payments made on time:

  • Month 1 is first month payment was late so no late payment penalty is due on the month 1 payment. But because that payment was 13 months late, 6 and 12 months penalties do apply

    • Penalty = amount paid late for month 1 multiplied by 10% (combined 6 and 12 month penalty percentages 5% + 5%)
  • Months 2 to 6 employer has paid 6 months late in tax year so for all month 2 - 6 late payments, a 2% penalty applies in addition to 6 and 12 month penalties.

    • Penalty = total amount paid late for months 2 to 6 multiplied by 12% (2% + 5% + 5%).

Example 2: Quarterly payer - Employer paid quarters 2 and 3 seven months late; all other quarters paid on time.

  • Quarter 2 is first late quarter so no late payment penalty is due on a payment for that quarter but because payment was 7 months late, 6 month penalty (5%) does apply.

    • Penalty = total amount paid late for quarter 2 multiplied by 5%
  • Quarter 3 - employer has paid 2 quarters late so 1% penalty applies to total amount paid late in quarter 3 in addition to 6 month penalty.

    • Penalty = amount paid late for quarter 3 multiplied by 6% (1% + 5%)

Example 3: Annual payer - Employer paid their annual payment 13 months late.

  • This is the first late payment employer has made in tax year so only 6 and 12 month penalties apply

    • Penalty = amount paid late multiplied by 10% (5% + 5%).

Example 4: Employer pays Reg 80 determinations 14 months late

  • The penalty date is the due date plus 30 days. Payment was made 13 months after the penalty date.

    • Penalty = the amount paid late multiplied by 15% (3 x 5% penalties).
    • Note: For some other types of payment, the penalty date is the day after the due date.