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Penalties modernisation Overview of new penalties for late paid in year PAYE Neil Johnson 02071472407

Penalties modernisation Overview of new penalties for late paid in year PAYE Neil Johnson 02071472407. Review of Powers, Deterrents and Safeguards. Context / Rational Aims of reform to provide a modern and effective set of tools for HMRC

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Penalties modernisation Overview of new penalties for late paid in year PAYE Neil Johnson 02071472407

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  1. Penalties modernisation Overview of new penalties for late paid in year PAYENeil Johnson02071472407

  2. Review of Powers, Deterrents and Safeguards Context / Rational • Aims of reform to provide a modern and effective set of tools for HMRC • Deliver the O'Donnell Review aims of greater customer service, improved effectiveness and efficiency • Third stage of penalties reform under the Review of Powers

  3. Background - PAYE • There are currently no penalties for the majority of employers, • The large employers surcharge is highly effective but can lead to some disproportionate results, • Around 40% of employers do not pay their PAYE on time • HMRC repeatedly criticised by the PAC and NAO for failing to tackle late payment of in year PAYE

  4. The path to FB09 Summer 2008 • First consultation published 19 June 2008 • 16 stakeholder meetings held, 40 formal responses • Independent qualitative research Winter 2008/09 • Second consultation with draft legislation • Further workshops and meetings with stakeholders to refine policy and legislation Penalties provisions passed Committee stage of the Finance Bill process on the 23rd of June 2009

  5. Safeguards • All penalties appealable to Tribunal on grounds of reasonable excuse • Special reduction for exceptional cases • Suspend penalties whilst in Time to Pay

  6. How the new penalties work • If a taxpayer fails to pay the amount due in full by the due date, that is considered a default, • The penalty will be charged at the end of the year depending on the number of defaults in year. • The first failure doesn’t count. The penalty is a % of the total additional amount defaulted. • Level of penalty escalates with more defaults. • Will be using a targeted risk based approach

  7. Late payment of in-year PAYE model Penalty as % of total tax unpaid Number of defaults in 12 month rolling period 1 No penalty Tax geared penalty 5% of any tax unpaid 6 months after due date Tax geared penalty 5% of any tax unpaid 6 months after due date 2 1% 3 1% 4 1% 5 2% 6 2% 7 2% 8 3% 9 3% 10 3% 11 4% 12 4% 0 3 6 9 12 Time (months)

  8. Reasonable excuse • The focus of the PAYE late payment penalties is the significant proportion of employers who deduct tax from payments to employees but who then delay or fail to pay the money over to HMRC, thereby gaining an unfair economic advantage. We recognise that there may be times when the amount to be deducted is unclear or changes as more information becomes available. This can result in too little tax being paid to HMRC in a particular month, despite an employer’s best efforts. Provided good systems in place and problems are corrected as soon as practicable, this will not lead to a late payment penalty (because would have a reasonable excuse).

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