PAYE Penalties and Interest Charges

Introduction

If you pay PAYE late, miss a filing deadline, or don't submit Real Time Information (RTI) returns on time, HMRC will charge penalties and interest. These charges apply to most employers and can add up quickly, so it's important to understand when they kick in, how much you'll pay, and what you can do if you receive a penalty notice.

Late Filing Penalties for RTI Returns

You must submit Full Payment Submissions (FPS) and Employer Payment Summaries (EPS) on time. You'll face a penalty if your FPS is late, you don't send the expected number of FPS returns, or you fail to submit an EPS when you haven't paid any employees in a tax month.

When Penalties Don't Apply

HMRC won't charge a penalty if:

• Your FPS is late but all payments reported on it are within 3 days of your employees' payday (though employers who regularly file after payday but within 3 days may still be contacted or penalised)
• You're a new employer and you sent your first FPS within 30 days of paying an employee
• It's your first failure in the tax year to send a report on time (this exemption doesn't apply to annual payroll schemes)

How Much You'll Pay

Late filing penalties are charged monthly and depend on the number of employees you have:

• 1 to 9 employees: £100 per month
• 10 to 49 employees: £200 per month
• 50 to 249 employees: £300 per month
• 250 or more employees: £400 per month

If you run more than one PAYE scheme, you can be charged penalties for each scheme.

HMRC sends penalty notices quarterly. The notice will tell you what you owe, how to pay, and how to appeal if you disagree.

Specified Charges

If you don't submit your FPS on time or send an EPS to confirm you've made no payments, HMRC may raise a "specified charge" — an estimate of what you should pay based on your previous PAYE history. You can see any specified charges in your PAYE account online.

A specified charge doesn't replace the need to submit your missing FPS or EPS. Only submitting the missing return for each month will remove the specified charge and replace it with the correct amount due.

Late Payment Penalties

HMRC charges late payment penalties on PAYE amounts not paid in full and on time. This includes monthly, quarterly or annual PAYE, student loan deductions, Construction Industry Scheme (CIS) deductions, Class 1 National Insurance contributions, and annual payments of Class 1A and Class 1B NICs.

Monthly and Quarterly Payments

The first late payment in a tax year doesn't count as a default. After that, penalties apply as a percentage of the amount that's late:

• 1 to 3 defaults: 1%
• 4 to 6 defaults: 2%
• 7 to 9 defaults: 3%
• 10 or more defaults: 4%

If you still haven't paid in full after 6 months, you'll be charged an additional penalty of 5% of the unpaid amount. A further 5% penalty applies if you haven't paid after 12 months. These additional penalties apply even if only one payment in the tax year is late.

Annual or Occasional Payments

For payments such as Class 1A and Class 1B NICs, HMRC determinations, and corrections to returns, the "penalty date" is 30 days after the due date. You may have to pay:

• A 5% penalty if you haven't paid in full within 30 days of the due date
• An additional 5% penalty if you haven't paid in full within 6 months of the due date
• A further 5% penalty if you haven't paid in full within 12 months of the due date

End of Year Adjustments

If you pay an adjustment after the end of the year under a special arrangement (such as IR35 or a formal modified PAYE arrangement), you won't be charged late payment penalties as long as you keep to the terms of the arrangement.

Interest on Late Payments

HMRC charges daily interest on all late PAYE and CIS payments from the date a payment is due until the date it's paid in full. Interest is charged to compensate for late payment and to provide fairness to those who pay on time.

What Interest Applies To

Interest is charged on all unpaid:

• PAYE tax, Class 1 National Insurance contributions, and student loan deductions
• CIS charges
• In-year late filing penalties
• In-year late payment penalties
• Any amount payable for month 12 at the end of the tax year still outstanding after 19 April
• Underpayments from Earlier Year Updates (EYU) or Full Payment Submissions (FPS)
• Annual payments such as Class 1A and Class 1B NICs remaining unpaid after the due date

When Interest Starts

Interest is charged from specific dates depending on the payment type and method:

• PAYE tax, Class 1 NICs, student loan deductions, and CIS payments: From day 19 of the relevant month or quarter for cheque payments; from day 22 for electronic payments
• EYU or FPS underpayments: From 19 April for cheque payments; from 22 April for electronic payments
• Underpayments at the end of the tax year: From 19 April for cheque payments; from 22 April for electronic payments
• Penalties: From the relevant due date of the penalty charge
• Class 1A NIC charges: From 19 July for cheque payments; from 22 July for electronic payments
• Class 1B NIC charges: From 19 October for cheque payments; from 22 October for electronic payments

Your online PAYE account will show accrued interest as a guide. Employers who pay electronically will see an accrued interest entry between day 19 and day 22 of a month. Once the electronic payment is received, the calculation will correctly use day 22 as the due date, and any interest charge between day 19 and day 22 will be cancelled.

You cannot appeal against an interest charge. If you don't agree with the amount charged, write to the issuing office explaining why.

Paying Penalties

You must pay any penalty within 30 days of the date on the notice. If you don't pay within 30 days, you'll be charged interest on the penalty itself.

You need to use the 14-character payment reference number starting with X that appears on your penalty notice — not your PAYE Accounts Office reference number.

Payment methods include online or telephone banking (Faster Payments), CHAPS, Bacs, debit or corporate credit card online, Direct Debit, at your bank or building society, or by cheque through the post. Allow enough time for your payment to reach HMRC by the deadline.

Appealing a Penalty

You can appeal online using HMRC's PAYE for employers service by selecting 'Appeal a penalty'. You'll get immediate acknowledgement when you submit your appeal. In some cases, HMRC will accept and settle the appeal automatically.

You can appeal if you think the penalty is not due, the amount is wrong, or you had a reasonable excuse for sending your reports or payments late. Acceptable grounds for appeal include:

• Data on the returns was incorrect
• Death or bereavement
• Fire, flood, or natural disaster
• Ill health
• IT difficulty
• No longer have any employees or no payments to employees
• Paid or filed on time
• Theft or crime
• Time to pay arrangement in place

You can also send your appeal in writing. The penalty notice will contain a unique ID for each penalty — you must include this when appealing to identify which penalty you're challenging.

Sources

• Interest on late payment of PAYE and CIS for employers
• Late payment penalties for PAYE and National Insurance
• What happens if you do not report payroll information on time
• Pay a PAYE late payment or filing penalty

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.