Blog posts tagged NI

PAYE – new late-payment penalty legislation for the 2010-11 tax year

We’ve seen many new taxes come in under the radar over the past few years, but for me, this is probably the most badly thought-out, badly communicated of the lot. And once again, it’s being left to accountants and tax advisors to communicate the bad news.

If you employ staff, you’ll be familiar with the need to pay monthly PAYE and NI contributions to HM Revenue & Customs (HMRC) by the 19th of the following month.

Up until now, the legislation has been such that if you pay late, it doesn’t really matter. HMRC might write nasty letters – or even send someone round – but ultimately, there was no penalty for paying late. The trick was to get everything square by 19 May annually, and there was no comeback.

This changed on 6 April this year, when the new legislation came into effect.

Here is a brief synopsis of the new rules and penalties for those on the main monthly scheme:

• pay your monthly liability by the 19th of the month following (this is the date by which the funds must be deposited in the bank account at HMRC – so beware of paying online on the 19^th. Confirm with your bank that it will get there on time);
• pay late once in any year and there’s no penalty – unless the payment is more than six months late – see below;
• pay late two-four times in any year, you’ll be fined 1% of the total amount that is late (ignoring the first late payment), so, if your monthly payment is £10,000 and on four occasions you’re a day late paying, the penalty will be 3 x £10,000 x 1% = £300;
• pay late five-seven times and you’ll be fined 2% of the total amount that is late (ignoring the first late payment);
• pay late eight-ten times and you’ll be fined 3% of the total amount that is late (ignoring the first late payment);
• pay late 11-12 times and you’ll be fined 4% of the total amount that is late (ignoring the first late payment);
• if any payment is more than six months late, you’ll have a pay a penalty of 5% of the overdue amount. If the payment is 12 months late, you will pay a further 5%.

No due reflection is given to the extent to which you’re late. If you are one day late, the penalty will apply.

From an administrative point of view, the law allows HMRC to charge penalties at any stage during the tax year, or after the end of the tax year up to two years of the due date.

In 2010-11, penalties will be charged after the end of the tax year. Therefore, penalty notices will not be sent out until April or May 2011. So please don’t test the system and think you’ve got away with it – you will get a nasty shock in April next year!

 Tim Haggard is founder and managing director of My Bookkeeping Online Ltd