Penalties for late payment of PAYE and NIC

9 May 2010

From May 2010, HMRC are implementing new penalties for late payment of periodic PAYE /NIC from businesses. This will include any tax, national insurance contributions, construction industry deductions and student loan deductions which may be due.

It means that businesses delaying payment of the above regularly, may have a penalty to pay if the payments are not made by 19th of the month.

The initial penalty is 1% of the tax and will increase in increments to 4%. There will be a 1 month period of "grace", ie you will be allowed one late month per tax year.

However, for all tax more than 6 months late, a penalty of 5% applies. If the debt remains due after a further 6 months a further 5% penalty may be applied.

This is similar to the VAT Surcharge regime which starts at 2% after the first default in a 12 month period and rises to 15% of VAT due.

NB: These penalties have now started after April 2010 and those with months of arrears will face months of penalties.

For annual payments such as Class 1A NIC the penalty can be applied up to 3 times. Or 15%.

What if the company is involved in the Business Payment Support Service, which agrees deals with companies for Time to Pay Deals? There will be NO PENALTIES if the deal is stuck to.

Reading the HMRC guide, gives a clue to the way to deal with late payment problems compounded by penalties and interest. Amazingly, you can pay the penalty over a Time to Pay deal period!

With an article in the press today (which we will blog later) saying HMRC getting tougher on Time to Pay Deals, this shows another HMRC tightening policy is being applied to companies that pay taxes late.

Sorry to bang on but, using a company voluntary arrangement to delay tax and creditor payments for up to 5 YEARS with no interest and no penalties AND with the ability to discount the debt significantly, is surely a better option than constant Time to Pay Deals that add interest and penalties?

Plus as directors, regularly using TTP's and paying surcharges and penalties may show that the business should be restructured - plus is this heading to wrongful trading? Think of your personal risk too?