Despite a softening of the attitude of HMRC towards PAYE penalties, running your own payroll can still be something of a minefield unless you are well organised and provide timely information.
Late payment penalties can be charged whether you pay monthly or quarterly.
You are permitted one penalty-free late payment each tax year, but after that, the penalty charges can quickly mount up! If just one payment is more than six months late, more substantial tax-based penalties will come into play. In addition to any penalties, you will be charged daily interest on late payments.
Late submission penalties are relatively new, 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 fortunately there is still some leniency.
For each submission, there is currently a three-day grace period before HMRC will impose a penalty. For late payments, the first default in a tax year is penalty-free.
At this point if your payroll is weekly, then you may be particularly concerned but the penalty system is applied on a monthly basis – which means just one penalty even if more than one FPS is late. The potential penalty depends on your number of employees.
HMRC can also charge an additional tax-based penalty if an FPS is more than three months late. The penalty system is 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.
An EPS is not due until the 19th of the following month, and an FPS can be submitted late without penalty if you indicate why the FPS is late – e.g. when impractical to report work done that day or if there is a reasonable excuse. You can also file a corrected FPS if an employee leaves. HMRC sends out penalty notices quarterly.
If you think a penalty is incorrect there are a number of grounds on which to appeal, e.g. an IT problem, a natural disaster or ill health. For smaller companies with only salaried directors/employees, the easiest option for minimising penalty risk is to file several FPSs in advance, maybe 3 months, if this ties in with quarterly payments.