What this letter usually means
A PAYE notice from HMRC usually relates to one of two things, and sometimes both. The first is late payment, meaning the PAYE and National Insurance you deducted was not paid over to HMRC by the due date. The second is late filing under Real Time Information, often called RTI, where a Full Payment Submission was sent in late or not at all.
Late payment penalties are charged as a percentage of the amount that was paid late, and the percentage rises with the number of times you have been late in the year. Late filing penalties are fixed amounts based on how many employees you have. Your notice may also mention interest, which is charged on top whenever PAYE is paid late.
Who it affects
These rules apply to any employer operating PAYE, whether you employ one person or many. They apply to limited companies, sole traders with staff, partnerships and charities alike. The amount of any late filing penalty depends on the size of your workforce, while the late payment penalty depends on the value paid late and how often.
Running payroll accurately and on time is the foundation of avoiding these notices. If you would like that handled for you, our payroll service keeps submissions and payments on schedule. You can also read our wider overview of HMRC penalties to see how the different regimes compare.
What you must not ignore
Please do not set the notice aside. Late payment penalties can grow, and there are additional charges if amounts remain unpaid for longer periods. The most important dates to keep in mind are the monthly payment deadlines and the points at which extra penalties apply.
If amounts are still unpaid after 6 months, a further penalty of 5 percent can apply, and the same again if still unpaid after 12 months. Interest also runs throughout. Acting now, even just to pay part of what is due or to contact HMRC, is far better than waiting and allowing these extra charges to land.
Check too that all your RTI submissions have actually been sent, because a missing Full Payment Submission can keep generating filing penalties.
What you may need to gather
Pulling these together first will make any conversation with HMRC or an accountant much smoother.
- The penalty notice, with its reference numbers.
- The tax months the penalties relate to.
- A record of when each PAYE payment was actually made.
- The number of times you have been late in the current tax year.
- Your employee count, which affects any late filing penalty.
- Copies of your Full Payment Submissions and any Employer Payment Summary.
Reliable bookkeeping and payroll records make this straightforward, because the payment dates and amounts are already recorded and reconciled.
What to do, step by step
Working through it in order keeps it calm and manageable.
- Identify the type of penalty. Decide whether the notice is about late payment, late filing, or both.
- Count your defaults. Work out how many times you have been late paying in the tax year, as this sets the percentage.
- Bring filing up to date. If any Full Payment Submission is missing, send it as soon as you can.
- Pay what you owe. Clear the outstanding PAYE to stop interest and to avoid the 6 and 12 month additions.
- Contact HMRC if you cannot pay in full. Ask about a Time to Pay arrangement rather than letting the debt sit.
- Review for a reasonable excuse. If something outside your control caused the delay, keep a clear record in case an appeal is appropriate.
A worked example
This shows how the percentage rises as defaults build up during a year.
Employer late several times in a year
An employer pays PAYE of around £5,000 each month. The first time they are late in the tax year usually does not count as a default. They then fall late again on four further occasions. With 4 to 6 late payments in the year, the penalty rate is 2 percent of the amounts paid late. If those four late amounts total £20,000, the penalty is 2 percent of £20,000, which is £400. Had they been late ten or more times, the rate would have risen to 4 percent. On top of this, interest runs on each late amount for the period it was overdue. If any of those amounts were still unpaid after 6 months, a further 5 percent penalty could be added, and again after 12 months, which is why clearing the balance quickly matters.
When to speak to an accountant
If you are unsure how many defaults you have, if filing and payment penalties are tangled together, or if the amounts are significant, it is worth getting help. An accountant can confirm the penalty has been calculated correctly, bring your RTI submissions up to date, approach HMRC about Time to Pay, and consider whether an appeal has merit.
We support employers across the UK with payroll and PAYE notices and can take this off your plate so you can focus on running your business. To move forward with confidence, you can start your quote or book a call and we will talk you through it without pressure.
A reassuring guide to PAYE late payment notices, the percentage penalties, RTI late filing and how to put things right.
Frequently asked questions
How are PAYE late payment penalties calculated?
They are a percentage of the amount paid late, set by how many times you were late in the tax year. The first late payment usually does not count. After that the rates are 1 percent for 1 to 3 late payments, 2 percent for 4 to 6, 3 percent for 7 to 9, and 4 percent for 10 or more. Further penalties of 5 percent can apply if amounts are still unpaid after 6 months and again after 12 months.
What is an RTI late filing penalty?
RTI late filing penalties apply when a Full Payment Submission is filed late. They are monthly amounts based on the number of employees, ranging from £100 for 1 to 9 employees up to £400 for 250 or more. The first default in a tax year is usually not charged, so the penalties tend to apply to repeated lateness.
Does the first late payment really not count?
In most cases the first late payment in a tax year does not count as a default for penalty purposes, although interest can still apply. It is the later late payments that drive the percentage up, so once you have been late once it becomes especially important to keep the rest of the year on time.
Is interest charged on late PAYE?
Yes. Interest runs on PAYE that is paid late, in addition to any penalty, for the period the amount remains unpaid. Paying the outstanding PAYE as soon as possible reduces both the interest and the risk of the 6 and 12 month additional penalties.
Can I appeal a PAYE penalty?
You may be able to appeal if you have a reasonable excuse for the delay, such as something genuinely outside your control. Keeping a clear record of what happened and when helps. An accountant can review your circumstances and, where appropriate, help you put the appeal together.