Businesses reminded of new PAYE penalties
Businesses operating in the UK have been reminded that HM Revenue and Customs has introduced new penalties for late payments for the current tax year.
With the new tax year now well underway and the focus shifting slightly away from the measures introduced in the Emergency Budget, businesses are being reminded of their responsibilities with regard to tax payments.
Accountancy technology specialist CCH has highlighted the changes as something UK businesses should be aware of.
In time for the new tax year, HM Revenue and Customs (HMRC) introduced new penalties for late payment of taxes.
The penalties apply to pay-as-you-earn (PAYE) tax, student loan deductions and construction industry scheme (CIS) liabilities.
Under the new system, which is set out in Schedule 56 of the Finance Act 2009, all employers will face a penalty charge if they are late making an in-year payment.
This replaces the old process, where penalties were only applicable to large employers that were required to make mandatory electronic payments.
CCH said: "The new penalties apply to all employers and also to CIS contractors, regardless of the size of the business or normal frequency of payment. They apply to monthly, quarterly and annual periods starting on or after April 6th 2010."
Penalties charged are worked out on a sliding scale, which can be accessed on HMRC's website.
Businesses making a late payment can avoid a penalty if it is the first time within the tax year that they are late, provided the payment is then received within six months of the deadline. Thereafter, however, firms can face fines of up to four per cent of the outstanding amount.
Firms making between two and four late payments will be charged at one per cent, those making between five and seven will face penalties of two per cent.
A charge of three per cent will be added on firms making between eight and ten late payments and those who exceed that will face a charge of four per cent on top of the owed amount.
CCH explained that the penalties will be applied to the total amount of the late payments.
For example, if firm makes three late payments of £2,500 each time, the penalty will be: (£2500 x 3) x 1% = £7500 x 1% = £75.
HMRC is set to send warning letters to firms who are late making payments within two weeks of the deadline. That would appear to be plenty of time, but CCH believes there are some "potential problems" with the system.
"HMRC can only identify cases which they think are late. In some instances, it will be obvious, but not always. For example, a small employer or contractor may not have any payment to make in the period," the company said.
"Alternatively, the letter may have been sent in error, perhaps because the payment has already been made, or there is a 'time to pay' agreement in place. As a last resort, a penalty can also be avoided if there is a 'reasonable excuse'. It is therefore very important, in order to avoid an argument at the year end, that businesses let HMRC know if there is no payment due for a period."
CCH also warned that just because a warning letter has not been sent it does not mean that HMRC could still issue a penalty.
Posted by Jacob Williams
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