Employers need to beware PAYE penalties

HM Revenue & Customs have recently extended their remit to allow them to charge employers payment penalties where PAYE and National Insurance contributions are paid late.

With the exception of small employers, who can pay quarterly, PAYE and National Insurance contributions are due by the 19th of the following month. In the current economic climate, with banks unwilling to lend, there is a temptation for employers to try to manage their cash situation by delaying their payments, but HMRC are taking action to stop this.

The amount of unpaid PAYE and National Insurance has increased in recent years and HMRC are now getting serious with employers who regularly miss the payment deadline. They can now charge late payment penalties where more than one payment is late in any one year. The penalty is calculated as a percentage of the total amount paid late and will depend upon the number of times payments are made late.

–          2-4 defaults           1% of the value of amounts paid late

–          5-7 defaults           2% of the value

–          8-10 defaults         3% of the value

–          11-12 defaults       4% of the value

To ensure that payments are made by the due date employers should pay either by direct debit or by bank transfer. They should not leave it to chance that a cheque payment will clear in time.

Where there is a genuine payment difficulty employers should contact the HMRC Payment Helpline before the due date to discuss a deferral. HMRC are generally amenable to agreeing a short tem deferral where there has been some unexpected cashflow problem, but there will be conditions. It is their view that PAYE and National Insurance contributions are monies that have been deducted from employee’s wages which belong to HMRC and should therefore not be used in lieu of proper business funding or to pay dividends to the directors.

Where there has been a persistent non-payment of PAYE & National Insurance contributions or where HMRC considers there is serious risk of non-payment they now have the power to insist upon the employer or the director providing security.   Should a business fail to provide the necessary security and continue to trade then it will be liable of a fine of up to £5,000.

The value of the security to be provided will depend upon the amount of tax at risk and the employer’s previous history and behaviour. The security will take the form of either a cash deposit from the business or director, or a bond from an approved financial institution.

This is primarily aimed at employers who have a history of non payment, particularly where there has been a previous failed business where there were unpaid PAYE. This could seriously affect the ability of owners and directors to start a new business.

If an employer has difficulty in making their PAYE payments on time then it can be assumed that they will have difficulty in providing a required security deposit. Employers therefore need to ensure that they prioritise their PAYE and National Insurance payments to avoid late payment penalties and the possibility of having to provide a security deposit.

Any employer that is having difficulty meeting their PAYE liabilities should seek professional help. A qualified accountant can help you review the costs of the business and prepare a detailed cashflow forecast. This is essential in negotiating with creditors and obtaining additional finance, where appropriate.