With effect from April 2010, all employers will face additional risks of penalties and interest if they make late monthly payments of PAYE and NIC.

Baker Tilly analysis

These changes to the PAYE and NIC penalty and interest regime will increase the complexity of the compliance burden on all employers, and raise the prospects of penalties and interest in respect of late payments and of penalties in respect of incorrect end of year returns. Just one late payment per year will be “allowed”, with subsequent failures to pay on time automatically triggering a penalty of between 2% and 12% of the tax or NIC at stake. Similar provisions will apply to late payments under the Construction Industry Scheme.

In detail

Legislation giving effect to these changes will be introduced in the Finance Bill. For the first time employers will face penalties if they make more than a single late PAYE or NIC payment in a tax year. Initially HMRC has indicated that it will administer the new regime on a “risk assessment” basis – identifying the worst offenders on an ongoing basis and imposing the new penalties accordingly. However, it is acknowledged that the new system could eventually lead to employers’ end of year compliance burdens increasing, with an expanded end of year P35 form containing detailed information about the PAYE and NIC due during each month (rather than the present simple annual reconciliation).