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HMRC internal manual

# How to distribute penalties on notices - flowchart

## Summary of the penalties which apply to different pay reference periods

Period PRPs Penalty calculation
1 Before 6 April 2009 No NoU to be issued.
2 Start on or after 6 April 2009 to 6 March 2014 50% of total underpayment
Minimum £100 for the NoU
Maximum £5,000 for the NoU
3 Start on or after 7 March 2014 to 25 May 2015 100% of total underpayment
Minimum £100 per NoU
Maximum £20,000 per NoU
4 Start on or after 26 May 2015 to 31 March 2016 100% of total underpayment
Minimum £100 per NoU
Maximum £20,000 per worker
5 Start on or after 1 April 2016 200% of total underpayment
Minimum £100 per NoU
Maximum £20,000 per worker

NMWM13218 describes the rate of the penalty in various pay reference periods.

How to distribute the penalties are summarised in this flowchart and the examples referred to in the flowchart are below:

## Key points to consider when preparing a NoU:

• In what PRP does the underpayment arise?
• What is the total underpayment; and does it exceed £20,000?
• Is the underpayment less than £100?
• Does the underpayment span two or more different periods of legislation?
• Is the amount of an underpayment for any individual worker equal to or exceeding £20,000?
• When preparing multiple NoUs ensure that the collective penalty per worker does not exceed £20,000.

Here are six examples to illustrate the approach set out in the summary table in Appendix 1.

### Example 1

An employer has underpaid a worker for PRPs starting 1 May 2015 and ending 30 June 2015.

The underpayment arises in period 3 and ends in period 4.

The total underpayment is £96 made up of:

Worker U/P Period 3 Period 4
1 £96 £48 £48

One NoU will be issued.

As the total underpayment spans periods 3 & 4 (£96) and is less than the minimum penalty of £100 per NoU, the underpayment will attract the minimum penalty of £100.

In this scenario the employer will receive one NoU and one penalty of £100.

### Example 2

An employer has underpaid 385 workers for PRPs starting 1 February 2014 and ending 30 June 2015. The underpayments arise in period 2 and end in period 4.

The total underpayment is £18,480 made up of:

Workers U/P Period 2 Period 3 Period 4
1 - 385 £18,480 £960 £17,040 £480

Two NoUs will be issued.

NoU 1

One NoU will be issued for all workers with underpayments arising in period 2.

As the total underpayment in period 2 is £960, the penalty will be calculated as 50% of the underpayment arising in period 2 i.e. penalty = £480

NoU 2

A second NoU will be issued for all workers with underpayments arising in periods 3 & 4.

As the total underpayment in periods 3 & 4 is £17,520, the penalty will be calculated at 100% of the total underpayment arising in periods 3 & 4; i.e. penalty = £17,520

In this scenario the employer will receive two NoUs and two penalties totalling £18,000.

### Example 3

An employer has underpaid 5 workers for PRPs starting 1 May 2015 and ending 29 February 2016 2015. The underpayments arise in period 3 and end in period 4.

The total underpayment is £60,000 made up of:

Worker U/P Period 3 Period 4
1 £3,000 £500 £2,500
2 £8,000 £1,500 £6,500
3 £10,000 £3,000 £7,000
4 £17,000 £250 £16,750
5 £22,000 £4,000 £18,000

Three NoUs will be issued.

NoU 1

As worker 5 has a total underpayment over £20,000 (periods 3 and 4: £4,000 + £18,000) the penalty will be calculated at 100% of the underpayment in a single NoU, capped at the maximum of £20,000.

NoU 2

One NoU will be issued for workers 1 – 4 with underpayments arising in period 3.

As the total underpayment in period 3 is £5,250, the penalty will be calculated as 100% of the underpayment arising in period 3; i.e. penalty = £5,250.

NoU 3

Another NoU will be issued for workers 1 - 4 with underpayments arising in period 4.

As the total underpayment in period 4 is £32,750, the penalty will be calculated as 100% of the underpayment arising in period 4; i.e. penalty = £32,750.

In this scenario the employer will receive three NoUs and three penalties totalling £58,000.

Remember to check that the employer won’t receive a penalty of more than £20,000 per worker.

### Example 4

An employer has underpaid 5 workers for PRPs starting 6 January 2014 and ending 31 August 2015. The underpayments arise in period 2 and end in period 4.

The total underpayment is £122,000 made up of:

Worker U/P Period 2 Period 3 Period 4
1 £8,000 £4,000 £2,000 £2,000
2 £16,000 £8,000 £4,000 £4,000
3 £20,000 £10,000 £5,500 £4,500
4 £34,000 £17,000 £8,000 £9,000
5 £44,000 £22,000 £11,500 £10,500

Four NoUs will be issued.

NoU 1

One NoU will be issued for all workers with underpayments arising in period 2.

As the total underpayment in period 2 is £61,000, the penalty will be calculated as 50% of the underpayment arising in period 2, capped at the maximum of £5,000.

NoU 2

As worker 5 has a total underpayment over £20,000 (periods 3 and 4: £11,500 + £10,500) the penalty will be calculated at 100% of the underpayment in a single NoU, capped at the maximum of £20,000.

NoU 3

As the remaining total underpayment for workers 1 - 4 in period 3 is £19,500, period 3 could be included on a single NoU with a penalty of £19,500.

NoU 4

As the remaining PRPs, for workers 1 – 4, all fall in period 4 and are less than £20,000 per worker, the remaining underpayments can be put on a single NoU with a penalty of £19,500.

In this scenario the employer will receive four NoUs and four penalties totalling £64,000.

Remember to check that the employer won’t receive a penalty of more than £20,000 per worker.

### Example 5

An employer has underpaid 2 workers for PRPs starting 1 June 2015 and ending 31 July 2016. The underpayments arise in period 4 and end in period 5.

The total underpayment is £10,000 made up of:

Worker U/P Period 4 Period 5
1 £6,000 £3,000 £3,000
2 £4,000 £0 £4,000

One NoU will be issued

One NoU will be issued for both workers with underpayments arising in periods 4 and 5.

As the total underpayment in periods 4 & 5 is £10,000, the penalty will be calculated as:

100% of the underpayment arising in period 4; i.e. penalty = £3,000

200% of the underpayments arising in period 5; i.e. penalty = £14,000

In this scenario the employer will receive one NoU and one penalty totalling £17,000.

### Example 6

An employer has underpaid 3 workers for PRPs starting 1 August 2014 and ending 31 May 2016. The underpayment for all workers arise in period 3 and end in period 5.

The total underpayment is £23,300 made up of

Worker U/P Period 3 Period 4 Period 5
1 £5,900 £5,000 £600 £300
2 £4,750 £4,000 £500 £250
3 £6,600 £6,000 £400 £200
4 £6,050 £5,000 £700 £350

Two NoUs will be issued

NoU 1

One NoU will be issued for all workers with underpayments arising in period 3.

As the total underpayments in period 3 is £20,000, the penalty will be calculated as 100% of the underpayment arising in period; 3 i.e. penalty = £20,000

NoU 2

A second NoU will be issued for all workers with underpayments arising in periods 4 and 5.

As the total underpayments in periods 4 and 5 is £3,300, the penalty will be calculated as:

100% of the underpayment arising in period 4; i.e. penalty = £2,200

200% of the underpayment arising in period 5; i.e. penalty = £2,200

In this scenario the employer will receive two NoUs and two penalties totalling £24,400.