PAYE and late reporting pitfalls

Despite a softening of HM Revenue & Customs’s (HMRC’s) attitude towards PAYE penalties, running your own payroll can still be something of a minefield unless you are well organised. Even if we take care of your payroll, we are still reliant on you to provide us with timely information.

Late submission penalties are a relatively new phenomenon, and this is the first tax year that they have been fully in place. Penalties apply if a full payment submission (FPS) is made late, although there is some built-in leniency.

For each submission, there is currently a three-day grace period before HMRC will impose a penalty, and the first default each tax year is penalty-free. And there is no need to be particularly concerned if your payroll is weekly, because the penalty system is applied on a monthly basis - which means just one penalty even if more than one FPS is late during any particular tax month. The potential penalty depends on how many employees you have:

Number of employees	Monthly penalty
1 to 9	£100
10 to 49	£200
50 to 249	£300
250 or more	£400

HMRC can also charge an additional tax-based penalty if an FPS is more than three months late.

The penalty system is of course entirely automated, and HMRC will typically expect to receive 12 FPSs from you each year. Therefore, it is important to submit an employer payment summary (EPS) for any month in which no employees are paid. But you have a little more leeway here because an EPS is not due until the 19th of the following month.

HMRC sends out penalty notices quarterly. If you think a penalty is incorrect then there are a number of grounds on which to base an appeal. Maybe you were late because of an IT problem, a natural disaster, ill health or a bereavement, or possibly you no longer have any employees.

For smaller companies with just salaried directors (or even employees), there are some ways of minimising the risk of incurring a late submission penalty. The easiest option is to just file several FPSs in advance, maybe three months at a time if this ties in with quarterly payments. It is always possible to file a corrected FPS should, for example, a director or employee unexpectedly leave.

In this edition

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 20 July 2015.