Missed penalty! Late reporting under real time information

 

Real time information (RTI) has been around for a while now, and most employers are familiar with sending payroll information to HMRC digitally via RTI submissions. 

 

However, it is easy to let things slip, particularly at busy times of the year or when key staff are on holiday and you find that you have accidentally strayed into penalty territory.

 

 

Under RTI, employers must use payroll software to send details of payments made to employees and deductions made from those payments to HMRC. This is done by means of a full payment submission (FPS). 

 

The FPS must be sent on or before the time that the payment is made to the employee. This remains the case even if the employer only pays amounts over to HMRC quarterly rather than monthly. 

 

The employee’s normal payday should be used for FPS purposes, even if the employee is paid earlier or late, for example, where the usual payday falls on a bank holiday. The FPS can be sent before the payday; however, it is not advisable to send it too early, because if things change it will be necessary to send a corrected FPS to update the information held by HMRC (e.g. if the employee leaves before the payday).

 

 

Where the FPS is sent after the payday, the employer will receive an online penalty warning if the late submission is the first one in the tax year. Subsequent late submissions may trigger a late reporting penalty. 

 

In certain situations, an FPS can be sent after the employee has been paid without triggering a penalty. These are set out on the Gov.uk website (www.gov.uk/running-payroll/fps-after-payday). 

 

Where the FPS is sent late, the employer should tell HMRC why, using the appropriate correct late reporting reason code. These too can be found on the Gov.uk website at the above address.

 

 

The employer may need to send an employer payment summary (EPS) as well as, or instead of, an FPS. An EPS will be needed in addition to the FPS in order to:

• claim the employment allowance;
• reclaim statutory maternity, paternity adoption or shared parental pay; 
• reclaim construction industry scheme donations for a limited company; or
• pay the apprenticeship levy.

An EPS should be sent instead of an FPS if the employer does not pay any employees in the tax month.

 

The deadline for filing the EPS is the 19th of the month in which the tax month ends.

 

 

If the employer has not paid any employees for at least one tax month and has not submitted an EPS, HMRC will send the employer an estimate of what they think the employer owes for that month. The estimate is based on the employer’s previous PAYE payment and filing history. 

 

Estimated amounts will show as specified charges on the employer’s PAYE account. The charge does not replace the need to file an FPS or an EPS. The charge will be replaced by the correct amount once the missing report has been filed. 

 

A penalty may also be charged, depending on whether the employer has filed late or omitted to file earlier in the tax year.

 

 

Penalties are charged if an employer fails to report payroll information on time without a valid reason for more than one month in the year. 

 

A penalty may be charged if:

• the FPS was late;
• the employer did not send the expected number of FPSs; or
• an EPS was not sent for a month in which the employer did not pay any employees. 

No penalty is charged for the first tax month for which the employer failed to report on time unless the PAYE scheme is an annual scheme (under which employees are only paid once a year and the employer only needs to report to HMRC once a year).

 

HMRC also allow a three-day period of grace and will not generally charge a penalty if all payments are reported on the FPS within three days of the date on which employees were paid. However, it should be appreciated that this three-day period of grace is a concession designed to cover the situation where employers generally file on time but occasionally file late rather than being a three-day extension to the deadline. HMRC may contact employers or consider them for a penalty if they regularly file within this three-day window.

 

HMRC also show new employers some leniency and will not charge a penalty if a new employer submits their first FPS within 30 days of paying an employee. 

 

The late reporting penalty is a monthly penalty, which depends on the number of employees in the PAYE scheme. The penalties are set out in the table below.

 

1 to 9 £100

10 to 14 £200

50 to 249 £300

250 or more £400

 

If the submission is made more than three months late, a further penalty is charged at 5% of the tax and National Insurance contributions due for the month to which the late submission relates.

 

Where an employer runs more than one PAYE scheme, penalties are calculated and charged separately for each.

 

Penalties are assessed in-year on a quarterly basis. The quarters run to 5 July, 5 October, 5 January, and 5 April. A penalty notice will be sent out after the end of the quarter which sets out:

• the amount owed;
• how to pay; and
• how to appeal where the employer does not agree with the penalty.

If the employer agrees that the penalty is due and that the amount of the penalty is correct, the penalty should be paid within 30 days of the date on the penalty notice. Interest will be charged on the penalty if it is not paid within this timescale.

 

An appeal process is available if the employer thinks that:

• the penalty is not due;
• the amount of the penalty is wrong; or
• there is a reasonable excuse as to why the report was submitted late. 

However, it should be noted that HMRC takes a fairly harsh line as to what constitutes a ‘reasonable’ excuse for the report being late. 

 

The appeal can be made online via HMRC’s ‘PAYE for Employers’ service. The penalty notice contains a unique ID – this is used to identify which penalty to appeal against. 

 

The online service allows the appeal to be made on any of the following grounds:

• the data on the returns was incorrect;
• the employer had died or experienced a bereavement;
• the filing expectation was incorrect (i.e. the returns HMRC expected to receive were not in fact due);
• the reports were filed on time;
• there was a fire, flood or natural disaster;
• the reports were filed late due to ill health;
• the late filing was due to IT problems;
• missed correction or easement;
• the employer no longer has any employees;
• there were no payments to employees;
• theft or crime;
• other – this should only be used where the reason for the appeal does not fall within any of the categories in the online system as listed above.

Once the appeal has been submitted, an immediate acknowledgement should be given on-screen. Frustratingly, the system does not allow a copy to be printed off for the employer’s records. However, it is a good idea to take a screen shot of the confirmation.

 

Appeals can also be made in writing.

 

The simplest way to avoid a penalty is to file on time every month. To ensure that this happens, it is important to have good systems in place so that the payroll is run on time each month and as part of that process, the FPS is submitted before the pay run is triggered. Where an EPS is needed, procedures should be in place to ensure that this is not overlooked.

 

The three-day concessionary period should not be relied upon and treated as an extension to the deadline. It provides a ‘get out of jail free’ card to be used sparingly. 

 

Understand when late reporting penalties may be triggered under RTI and have systems in place to guard against them.