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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
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Interest, penalties and surcharge: penalties: late payment penalties for 2010-11 returns onwards

General

Late payment penalties are imposed when tax and NIC liabilities (referred to throughout as tax) are paid late. These penalties are applied to balancing payments, determinations, amendments and revenue assessments but not interest, late filing penalties or payments on account. The balancing payment liable to late payment penalty will include any part of a payment on account outstanding at the balancing payment due date.

From the 2015-2016 tax year, Class 2 NICs, where they are due, will form part of the balancing payment on which late payment penalties are changed. Note: Class 2 NICS are not included when calculating payments on account.

Late payment penalties will be charged as follows

  • A first late payment penalty will be created for 5 per cent of the tax unpaid for the return year 30 days after the payment due date. This will be shown on the statement on account as ‘30 days late payment penalty for yy/yy’
  • A second late payment penalty will be created for 5 per cent of the tax unpaid for the return year 30 days after the payment due date plus 5 months. This will be shown on the statement as ‘six months late payment penalty for yy/yy’
  • A third late payment penalty will be created for 5 per cent of the tax unpaid for the return year 30 days after the payment due date plus 11 months. This will be shown on the statement on account as ‘12 months late payment penalty for yy/yy’

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

Issue of notice of penalty

Where a late payment penalty is imposed, form SA370 notice of penalty assessment, which includes a payslip, will be issued to the customer and a copy will be sent to the customer’s agent where the 64-8 signal is set. Enclosed with the notice of penalty assessment will be leaflet SA370 Notes (these will not be sent with the agents copy).

Forms SA370 are flexible notices of penalty assessment that can be used to cover more than one penalty, if being selected by the system at the same time. For example, if a late filing (tax geared) penalty is selected at the same time as a daily penalty and a late payment penalty they will all be shown on the same notice of penalty assessment.

An appeal can be made within 30 days from the date of issue of the notice of penalty. An extra 7 days over and above the 30 days described in the legislation, are allowed for printing and despatch.

Note: In the unusual position where more than one of the same penalty type is selected at the same time, then each will be shown on a separate form SA370.

Example

When two tax return amendments are processed on different days in the same week, two separate late payment penalties will be raised. This is because the two tax return amendments have different ‘trigger dates’. For further information, see subject ‘Late payment trigger dates’ (SAM61390).

Automatic imposition

From April 2012 the system will automatically apply the late payment penalties for late 2010-11 returns weekly. Over time the system will be able to automatically apply late payment penalties for a maximum of four ‘in-date’ tax return years. For example, in 2014-15 the system can still automatically apply a late payment penalty for a late 2010-11 return.

A late payment penalty can still be charged where a remission is posted against the charge or charges that the penalty is calculated on. Any amounts remitted (excluding type 16 where a charge is being collected through the tax code) will be excluded when calculating the penalty amount. Any amounts remitted under ‘type 16’ will be included in the calculation.

The due date of the penalty will be 30 days after the issue of the notice of penalty.

Exceptions

The system will not automatically apply a late payment penalty

  • If the customer is subject to bankruptcy
  • If the customer is subject to an Individual Voluntary Arrangement
  • In respect of partnership returns
  • Where a time to pay (TTP) arrangement was agreed before a trigger date. (However, if the arrangement is later cancelled because the customer defaulted, a penalty will be raised and calculated on the amount that was outstanding at the trigger date)
  • Where there is an informal discharge against the charge or charges that the penalty is due on (however if the informal discharge is later removed, a penalty will be raised)

If the address on the record is RLS, the system will not issue a late payment penalty. However, once the RLS status is clear, the notice of penalty assessment will be issued the next time a penalty run takes place. The only exception to this is if an up-to-date address is found but the penalty relates to a year prior to the four ‘in-date’ tax return years. The system is unable to issue the penalty so you must issue one clerically, see SAM61280 and the Action Guide at SAM61281.

In addition, if a late payment penalty has been cancelled, then no further penalties of that type will be raised automatically for that year.

Example

The Balancing Payment for 2010-2011 of £5000 was due 31/01/2012. As this was not paid by 01/03/2012, a 30 day Late Payment Penalty was raised for £350 (£5000 x 5 per cent) and this penalty was later cancelled by an operator. If a tax return amendment is received later and a payment is outstanding at the trigger date for the amendment, a second 30 day late payment penalty will not be raised automatically and will need to be raised manually.

For further information about Manually Raising Penalties, see SAM61281. For further information about Late Payment Penalty trigger dates, see SAM61390.

Interest

Interest will be charged if the penalty is not paid 30 days after the issue of the notice of penalty assessment.

Standovers

A late payment penalty will not be charged where there is an informal standover posted against the charge or charges that the penalty is calculated on. If the informal standover is released, the late payment penalty position is reviewed and, if applicable, a late payment penalty will be issued when the next penalty run takes place. However, if the penalty relates to a year prior to the four ‘in-date’ tax return years, the system is unable to issue the penalty and you must issue this clerically, see subject ‘Clerically raising penalties for years prior to CY-4’ (SAM61280). Note: A late payment penalty will be charged on the released amount from the original penalty trigger dates for each of the penalties that may apply.

Events impacting late payment penalties

Certain events have an impact in respect of a late filing (tax geared) penalty, for example

  • A return received that replaces a determination
  • An amended return is processed
  • A reallocation of payments takes place
  • A remission is cancelled

If any of these events reduce the amount on which the late payment penalty is based, the penalty is reduced straight away and the change reflected on the statement of account. A revised notice of penalty assessment will not be issued.

If any of these events increase the amount on which the late payment penalty is based then a further penalty will be created (This content has been withheld because of exemptions in the Freedom of Information Act 2000) at the next penalty batch run, usually weekly. A further notice of penalty assessment is issued and the new charge is reflected on the statement of account. See SAM131026 for information about what financial transactions prompts the issue of a statement.

You should note that, in limited circumstances, the event could happen outside of the four ‘in-date’ tax years, for example an amendment to 2010-11 is processed during 2015-16 (the return was issued late and the amendment is in time). If the liability is reduced, the late payment penalty will be reduced automatically. However, if the amendment increases the liability, you must raise any further late payment penalties clerically by creating a miscellaneous penalty charge using the function CREATE SUNDRY CHARGE. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)