Employers and their advisers have had nearly a year dealing the new RTI regulations and electronic filing of payroll information. The first year saw a relaxed approach by HM Revenue and Customs for small businesses (those with less than 50 employees). However the situation is now changing for many businesses and it is likely that HM Revenue & Customs will be collecting significant sums in penalties rather like the existing situation for those with CIS Returns in the construction industry.
Some good news is that payroll software and HMRC systems will be updated for 2014/15 to improve the overall RTI system and reporting. This recognises some of the issues that have occurred in the past year.
FIRSTLY RTI PENALTIES
All new employers starting to operate PAYE after 6 April 2014, as well as existing employers with 10 or more employees, will need to report each time they pay their employees from April 2014. For a lot of companies this should not represent a problem for once a month payments, but for others with weekly and casual labourers this will not be so straightforward.
Existing businesses with 9 or fewer employees (“micro employers”) will still be able to take advantage of the “on or before” relaxation until April 2016. This means they can report on or before the last payday in the tax month irrespective of how many paydays occurred.
New late filing penalties will apply to returns due from employers for the tax year 2014/15 onwards. Where payment information is not received as expected on an FPS, or you haven’t told HMRC that no employees have been paid in a tax period by sending an EPS, late filing penalties will apply. The penalties applicable each month are:
Between 1 and 9 employees £100
Between 10 and 49 employees £200
Between 50 and 249 employees £300
So clearly these can be severe.
SECONDLY – LATE PAYMENT PENALTIES FOR PAYE/NI/CIS TAX
Don’t forget that the late payment regime has been in existence for a couple of years already. It is important to pay PAYE etc on time to avoid penalties which can be severe.
The first time you are late in a tax year, it is “ignored”. You will only get one warning letter from HM Revenue & Customs. The next time the penalty is 1% of the tax, increasing to 2% for the fourth time, 3% for the 6th time and 4% for the tenth time. Plus there is an extra 5% fine if the tax is still unpaid after 6 months and another 5% after a year. Interest is also payable on unpaid penalties. So this can all really rack up. We have seen one company who was habitually late by around 2 weeks every month fined over £10,000 under this rule!
(There is a way to minimise this impact by virtue of making sure that if you are going to be late on more than 2 occasions, that you make sure the payments are allocated to the current month first, leaving the older amounts outstanding, as then you will not be playing catch-up on the old months and late every time for the current months).
To sum up: PAYE penalties for both RTI submission and late payment should be avoided! If you need help with any payroll matters, please contact us.
Further information can be found at the following HMRC links:
Operating RTI in teal time (HMRC web page)
PAYE Real Time Information: package of help announced for micro employers (HMRC news update)
Who and what late payment penalties apply to (HMRC late payment penalties web page)