Tax & Accounting News

Penalties for late tax payments

17/05/2010

The 2010/11 tax year saw the introduction of a series of new penalties for late payment of income tax, National Insurance contributions, Construction Industry Scheme deductions and student loan payments.

The new rules will apply to all employers and contractors who make payments under the PAYE system. Penalties will be worked out as a proportion of the amount that is late, and will increase if payments are regularly behind schedule.

A penalty will not be charged for the first late payment of the year (unless it is over six months late) or if there is a ‘reasonable excuse’ for the delay.

If monthly or quarterly payments are made late between two and four times in a tax year, the penalty charge is one per cent of the amount owed. If payments are late five to seven times a year, the charge is two per cent; if payments are made late between eight and 10 times in a tax year, the penalty is three per cent, and if payments are made late more than 11 times, the charge is four per cent. If the amount owed has not been paid in full after a further six months, a five per cent charge may become payable, with an additional five per cent charge if it has still not been paid after 12 months.

For annual payments, employers may face a penalty of five per cent of the amount owed if it has not been paid in full by the ‘penalty date’, which is usually 30 days after the due date. Another five per cent penalty could be charged if the amount owing has not been paid within 11 months of the penalty date.

HM Revenue and Customs (HMRC) will also continue to charge interest on late payments, starting from the end of the tax year concerned. It has also announced proposals for charging interest on late payments within the same tax year, but this will not happen until at least the 2012/13 tax year.

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