Payroll penalties – Don’t get it wrong

Having to do payroll for some business owners is a punishment in itself, but what many don’t realise is that getting payroll wrong can lead to significant penalties. So, if you’re a small or medium sized business owner who does payroll yourself, our message is quite simple – do all you can to make sure you don’t get it wrong.

Payroll, in the hands of an expert, is a relatively straightforward process. But when you combine the pressure of running a business and keeping up with ever-changing payroll legislation, it can become a real mine-field. If this sounds like a familiar situation for you, then take a few minutes to read on. Our advice could help you avoid payroll penalties.

What do we mean by payroll?

Before we start, it might be helpful to define exactly what we mean by payroll. When we use the word payroll, we mean a term encapsulates everything from PAYE to National Insurance Contributions, National Minimum Wage, National Living Wage and Benefits in Kind. Effectively, when we refer to payroll, we refer to the processing of everything that is paid to an employee who is in your employment.

As an employer, it’s your responsibility to make sure that you respect payroll timescales, adhere to your obligations and submit accurate returns and documents. There are plenty of software options to help you, but the reality is that you need someone on your side either in-house or outside your organisation who is fully up to date with payroll legislation.

Real Time Information and PAYE

Through Real Time Information (RTI), Full Payment Submissions (FPS) need to be delivered to HRMC accurately and on time. Failure to deliver will almost certainly lead to penalties.

An FPS needs to be submitted to HMRC on or before payday. First offences are tolerated within a period of 30 days. After that, penalties for late submission of an FPS range from £100 for under 10 employees to £400 for more than 250 employees. If you continue to fail to meet your obligations for more than 3 months, the penalties rise to 5% of the tax due.

An Employer Payment Summary (EPS) must be submitted to HMRC on or before the 19th of the following month. Payments themselves must be by the 19th or the 22nd of the month following payment, depending on whether you pay electronically (22nd) or not (19th). If you fail to pay on time, you could face penalties that are calculated based on a % of the tax paid late. The first default is disregarded but after that, there is a sliding scale of 1% to 5%.

If you are having difficulty making payment, you may be able to negotiate an arrangement with HMRC using a TTP (Time to Pay) short-term agreement, but this is neither automatic nor a long terms solution.

So, as you can see, paying close attention to your FPS submissions makes great business and financial sense.

Benefits in Kind

When it comes to Benefits in Kind, you have until 6 July following the tax year in which benefits are provided to submit P11Ds. If you fail to do so, the initial penalty is £300 per P11D. If you continue to fail to submit, you could face penalties at the rate of £60 per day on a basic level.

When it comes to the Class 1A National Insurance Contributions on benefits, if they remain unpaid, then there are additional penalties. These payments are due by 22nd July at the latest (19th if you’re not making electronic payments). Left unpaid, they attract an initial penalty of £100 for every 50 employees. The penalty is capped at the value of the NICs due and increases on a percentage basis that rises the longer the submission remains undelivered.

There is a possibility for an employer to enter into a PAYE Settlement Agreement (instead of submitting P11Ds) to settle outstanding amounts over the summer months and up to 19 October. However, once again, penalties for not complying apply in the same way as the other PAYE and NIC penalties we’ve described already. So the message is – beware.

National Minimum Wage

Payment of the National Minimum Wage/Living Wage is a big responsibility for employers and failure to pay them can be particularly punitive. With penalties of up to 200% of amounts due, it’s clear to see that as an employer, it is in your interest to make sure you make these payments on time.

Everyone can make a mistake and the payroll penalties make some allowance for this. For example, if outstanding payments are made within 14 days, the penalty will reduce by 50%. The big issue with National Minimum Wage and Living wage is that HMRC has a tendency to put into the public domain the names of employers that have failed to meet their obligations. And that isn’t good for business.

Under certain circumstances, there may be an option for you as an employer to appeal to an employment tribunal if you think you’ve been served an under or non-payment notice that you consider incorrect or unjustified. That said, rather than have to take your eye off the business ball to resolve issues like these, it’s better just to stay on top of your obligations.

Getting reviewed

If HMRC carries out a review and decides that a return is inaccurate they can also apply penalties. These penalties fall into 3 different categories – careless inaccuracy; deliberate but not concealed inaccuracy and deliberate and concealed inaccuracy. The amounts applied are 30, 70 and 100% respectively.

The way to reduce these penalties is by providing a prompted or unprompted disclosure. Taking this action could reduce your penalty by 15, 30 and 50% for a prompted disclosure and 0, 20 and 30% for an unprompted disclosure.

If you find yourself in the situation where you are being accused of errors or significant default, it’s usually best to get a professional to act for you.

What to do if you get a penalty

HMRC penalties are automatic, which means that your unique situation is not taken into account at all, apart from the fact that you’ve failed to meet your duties. If you feel as if you have a ‘reasonable excuse’ or ‘special circumstances’ that have led to your downfall, you can appeal. The problem with both of these terms is their definition. Things like not having the funds to make the payments are not normally considered a reasonable excuse (but in some instances could be). Nor is being unaware of your responsibilities.

So the message is, do what you need to do. Do it right. Do it on time. That way you don’t need to worry about penalties.

If you’re facing a problematic payroll situation, a penalty or are simply tired of trying to keep all your payroll plates spinning yourself, get in touch. At Payplus, not only do we speak your language, but we commit to our motto, which is: Your Staff Paid Accurately and On Time or You Don’t Pay a Thing. And that’s a sure-fire way to avoid payroll penalties.


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