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This article summarises the main tax late filing and payment penalties. In addition, you should be aware there are penalties for providing incorrect information.
As a small business owner you will have to deal with a number of different departments within HMRC. Each department has different forms to complete with different deadlines and different penalties should either your submission or payment be late. The following is a quick guide as to what you need to be aware of when dealing with HMRC and which deadlines you should put in your diary.
PAYE
Late Filing
Under HMRC's Real Time Information (RTI) system, late filing penalties apply on a monthly basis. However, no penalty will apply for the first month in each tax year that a return is filled late.
New employers will not be penalised if their first Full Payment Submission (FPS) is received within 30 days of making their first payment to an employee.
Filing penalty notices are issued quarterly in July, October, January and April, showing the amount of the filing penalty for each tax month identified in that quarter.
Penalties for late filing may be imposed as follows:
|
Number of employees |
Monthly penalty (£) |
|
1 to 9 |
100 |
|
10 to 49 |
200 |
|
50 to 249 |
300 |
|
250 or more |
400 |
If you feel that a penalty has been issued in error, make sure to appeal against the penalty in writing to HMRC. Details of how to appeal can be found on HMRC's website.
Late Payment
Interest is payable on every late payment throughout the year. For PAYE purposes, periods run from the 6th of the month to the 5th of the following month. If paying by cheque, payment must be made by the 19th, whereas electronic payments must clear in HMRC’s bank account by the 22nd. HMRC now accepts Faster Payments, meaning funds can clear on the same day or the next working day, depending on your bank.
HMRC charges daily interest on late PAYE payments at a rate of the Bank of England base rate plus 4%, effective from 6 April 2025. The latest interest rates can be found on the Gov.uk website at: https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments. Interest will be backdated at the end of the tax year once you have filed your Employer Annual Return.
Penalty charges may be issued for missed payments of PAYE...
|
No. defaults in a tax year |
Penalty percentage |
Amount to which penalty percentages apply |
|
1-3(1) |
1% |
|
|
4-6 |
2% |
The total amount that is late in the relevant tax month (ignoring the first late payment in the tax year) |
|
7-9 |
3% |
|
|
10 or more |
4% |
Notes
(1)The first failure to pay on time does not count as a default.
|
Additional penalties |
Amount |
|
6 months late |
5 % |
|
12 months late |
Further 5% |
CIS
Late Filing
If you operate in the construction industry you must file a return to report the deductions you have made from your subcontractors on a monthly basis. The period runs from the 6th of the month to the 5th of the following month and you have 14 days to make the return. For example, for the period from the 6th of May to the 5th of June you must file the return by the 19th of June.
The payment of the CIS deductions is made at the same time as your PAYE payments and have the same deadlines as described above.
You must make a return every month even when no deduction has been made: if no deductions have been made then you must file a nil return. The penalties for failing to file the monthly return are the same as the PAYE penalties described above.
Late Payment
CIS is paid at the same time as PAYE and follows the same payment pattern. The same penalty and interest regime applies as outlined above.
P11D
P11D forms are required if you provide benefits to employees. Some examples include a company car, fuel, private medical insurance, beneficial loans and accommodation. The P11D also give a breakdown of the expenses provided to each employee. The P11D(b) declares the Class 1A National Insurance payable by the employer.
Late Filing
Forms P11D should be filed by the 6th of July following the tax year. An initial penalty of up to £300 per return may be charged for late filing, with a maximum penalty of £60 per return per day being charged where the failure continues.
For the P11D(b) summary form, where the return is up to 12 months late, HMRC may charge a penalty of up to £100 per month (or part month) for each batch (or part batch) of 50 earners for whom Class 1A is payable. Returns over 12 months late may be subject to a penalty of an amount not exceeding the amount of unpaid Class 1A NICs outstanding at 19 July.
Late Payment
Class 1A NICs need to be paid to HMRC by the 22nd of July if paying electronically, or by the 19th of July if paying by cheque.
The same penalties and interest rates apply to Class 1A National Insurance as to that under PAYE.
VAT
Late Filing and Late Payment
VAT returns are typically submitted quarterly, though monthly and annual accounting schemes are available. Each return must be filed online within 37 days after the end of the accounting period. For example, for a quarter ending on 31 May, the submission deadline is 7 July.
Payment Methods and Deadlines
Cheque Payments: Must reach HMRC by the due date of the VAT return, which is the same as the filing deadline (e.g., 7 July for the period ending 31 May).
Electronic Payments: Payments must clear into HMRC’s account by the same due date. HMRC accepts Faster Payments, allowing same-day or next-day transfers, depending on your bank's processing times.
Direct Debit Payments: If you have a Direct Debit arrangement, HMRC will collect the payment automatically, typically three working days after the due date.
See a detailed table on HMRC’s website here .
Late Filing Penalties
From 1 January 2023, HMRC implemented a penalty points system for late VAT return submissions:
- Penalty Points: Each late submission incurs one penalty point.
- Thresholds: The penalty point threshold varies based on your submission frequency (e.g., quarterly filers have a threshold of 4 points).
- Penalties: Upon reaching the threshold, a £200 penalty is issued. Each subsequent late submission while at the threshold incurs an additional £200 penalty.
For detailed guidance, refer to HMRC's official page www.hmrc.gov.uk.
Late Payment Penalties
Effective from April 2025, the late payment penalty structure is as follows:
- Up to 15 Days Late: No penalty if the payment is made or a Time to Pay arrangement is agreed upon within this period.
- 16 to 30 Days Late: A penalty of 3% of the outstanding tax is charged on day 16.
- 31 Days or More Late: An additional 3% penalty is applied on day 31, plus a daily accrual of 10% per annum on the outstanding amount from day 31 onwards until the debt is settled.
These updated rates were announced in the Spring Statement 2025 to encourage timely payments.
Interest on Late Payments
In addition to penalties, HMRC charges late payment interest from the first day a payment is overdue until it is paid in full. The interest rate is linked to the Bank of England base rate plus 2.5%.
Avoiding Penalties
To avoid penalties:
Timely Submissions and Payments: Ensure VAT returns and payments are submitted and cleared by the due dates.
Time to Pay Arrangements: If unable to pay on time, contact HMRC promptly to discuss a Time to Pay arrangement, which may prevent penalties if agreed upon within the specified periods.
Staying informed about these regulations and adhering to deadlines will help you avoid unnecessary penalties and interest charges.
See a detailed table on HMRC’s website here.
Corporation Tax
Late Filing
Your Company Tax Return must be filed within 12 months of the end of your accounting period.
Penalties for late filing are as follows...
- £100 for up to three months late.
- A further £200 penalty if you file your return more than three months late.
- If your Company Tax Return is late for three or more accounting periods in a row, the fixed penalty increases to £500 for both violations.
- There are additional tax-related penalties of 10% of the unpaid corporation tax where a return is filed between 18 and 24 months after the end of your accounting period and a further 10% where a return is still not filed after 24 months.
Late Payment
Payment of Corporation Tax is due 9 months and a day after the period end, this means that you may end up paying the Corporation Tax before you file your Company Tax Return. Interest is payable on any tax paid late as per the interest rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates.
Personal Tax - Self Assessment
Late Filing
The penalties for late Self Assessment returns are as follows:
- Initial £100 penalty for late filing of the tax return, irrespective of the tax due or if you have paid tax on time.
- If you haven't filed your return after 3 months daily penalties of £10 per day apply, capped to £900.
- If you haven't filed your return after 6 months a further penalty of 5% of the tax due or £300: whichever is greater.
- After one year, another 5% or £300 charge, whichever is greater. In serious cases the penalty after 12 months can be up to 100% of the tax due.
The penalties are applicable even if no tax is due.
Late Payment
Interest is applied to any late payment of tax at the rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates. If you don't pay the tax you owe for the previous tax year on time by 31st January the following penalties apply...
- If not paid within 30 days a 5% surcharge of the tax due applies.
- If the payment is six months late a further 5% penalty is payable.
- If the tax goes unpaid for 12 months a further 5% surcharge is payable.
Penalties do not apply to payments on account that are late but interest does.
In conclusion, operating a small business means that you have a number of deadlines to adhere to. You must ensure that you file all your HMRC forms on time to avoid penalties and make payments on time to avoid interest and surcharges.
How We Can Help
We can guide you through the maze of deadlines and help by sending you reminders in respect of the taxes we act on your behalf for.
