Late payment penalty = 500% APR

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Late payment penalty = 500% APR  

The first 2010/11 penalty notices for late payment of PAYE are now being issued by HMRC. They demonstrate just how expensive this regime can be. Everyone now needs to beware of delays in paying PAYE.

In one case, an employer is being charged cumulative penalties of over £22,000 because of paying its c.£45,000 monthly PAYE an average of 3 days late through the 2010/11 tax year. Based on such a delay, the 4% penalty applied to all the monthly payments equates to an annualised interest charge of around 500%. While the penalty will be disputed as disproportionate, it is clear employers must ensure that their administrative processes are up to scratch so that payments reach HMRC by the due date and no later.

As illustrated in the table below, the first late payment is ignored but from the second onwards, the more times you pay late the higher the penalty will be.

 

No. of times payments are late in the tax year Penalty percentage on total late payments in the year Amount to which penalty percentages apply
1 No penalty unless paid more than six months late *
2 – 4 1% * Total amount that is paid late in the tax year (ignoring the first late payment in that tax year).
5 – 7 2% *
8 – 10 3% *
11 or more 4% *
* Additional penalty
Any number 5% penalty on each amount of tax paid more than 6 months late Total amount that is paid late
Any number 10% penalty on each amount of tax paid more than 12 months late
 

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