I keep getting penalties for late payment PAYE. The problem is, the more penalties I get, the harder it is to pay!
Many businesses find themselves in a difficult cycle of late payment, where the penalties for not paying PAYE on time make it even harder to settle the debt. HMRC has a structured penalty regime for the late payment of periodic PAYE and NIC from businesses. It is crucial to understand these penalties, as they can quickly compound and make a difficult financial situation worse.
For late payments of tax, National Insurance contributions, and other deductions, HMRC may charge a penalty. The penalty structure works in increments:
However, if your company is involved in the Business Payment Support Service and adheres to a Time to Pay deal, there will be no payment penalties.
When facing compounding penalties, a business has several options to consider. The best choice depends on the company’s financial position and long-term viability.
A Time to Pay (TTP) deal is an informal agreement with HMRC to pay back debt over a relatively short period. While there are no penalties as long as the deal is stuck to, a TTP deal typically requires the debt to be paid in full over a short timescale (e.g., 6-12 months). This can be a viable solution if the business is fundamentally strong and can afford the payments. However, if a TTP program is too ambitious, it may fail and lead to more serious insolvency procedures.
A Company Voluntary Arrangement (CVA) is a powerful, formal legal agreement with creditors. It allows a business to delay tax and other creditor payments for up to 5 years, with no interest or penalties. A CVA can significantly restructure a company’s debt, with the ability to write off a proportion of unsecured debts. A CVA can also be used as a powerful tool to exit property leases and make redundancies with no cash cost to the company, helping to make the business profitable again. It is a robust mechanism for rescuing a distressed company when you know it has a profitable future. During the time it takes to organize the CVA, payments to PAYE and other creditors can be frozen, which improves the company’s cash flow.
The reason CVAs are not more widely used is that they are complex to implement. Unlike a simple liquidation, a CVA requires significant experience in negotiating deals with creditors and getting them to agree to a plan. Many insolvency practitioners do not have the specialized experience to get a CVA approved. However, a CVA is a powerful tool for rescuing a business when it is viable, and it can save a company from going into liquidation where every creditor may lose their money and a valuable customer.
Written ByKeith Steven
Turnaround Director
Keith is the Turnaround Director of RMT KSA Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
