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Additional late reporting tolerance announced by HMRC

February 18, 2015


In a press release on Tuesday the 17th of February, the day after the latest Employer Bulletin was published, HMRC have said that there will be further changes to the RTI penalty regime.  Late filing penalties will start for employers with fewer than 50 employees on the 6th of March (as planned, although significantly delayed from their original start date of October 2013).  However, where an FPS return is filed within three days of the payment date HMRC will not now issue a penalty.  This new three day late reporting reason will also be available to larger employers who have already incurred a penalty by means of the online Penalty Appeal Service.  Where applicable, the employer should complete the ‘Other’ box in the PAS and enter ‘Return filed within three days’ to appeal the late filing penalty. 

HMRC also announced that it will be closing around 15,000 inactive PAYE schemes in order to prevent unnecessary penalties being issued.  Where a scheme has not made a submission since April 2013 (and therefore appears to have ceased), HMRC will write and explain that the scheme will be closed.  This news was greeted with mixed responses on accountancy forum AccountingWEB, as some members worried that live schemes could be closed by mistake and other were frustrated because although they had already told HMRC that the PAYE scheme is closed they are still receiving Generic Notices for failing to file for these closed schemes.

Commenting on the HMRC press release in her blog, payroll expert Kate Upcraft said that HMRC have effectively created a three day tolerance for late filing of RTI returns.  She notes however that if any date in the FPS (even if it is a date reporting non-financial data such as a name change or a date of leaving) is more than 3 days prior to the filing date, then a Generic Notice (and a late filing penalty) will still be issued.  For small employers, this means that from the 6th of March if they file their returns more than three days late they will get a penalty as there is no non-penalised month for the 2014-15 tax year.  Month 12 penalties for small employers and penalties from October 2014 for large employers will be issued in late May 2015.

Some have speculated about the impact that this change to the penalty system could have on Universal Credit.  A claimant’s assessment period is unique to them and is independent of their employer’s pay cycle.  This means that where an employer files late, the claimant may find that although they get their full benefit amount one month, the next month DWP systems think they have been paid twice in one assessment period and consequently the claimant will not receive any benefit.  Remarking on the changes in a posting on Payroll Help, Learn Payroll said that “the result of this late filing tolerance seems to be that the real time interaction between the submission of earnings via the FPS and the tapering of the UC is lost.” 

HMRC has also changed the planned introduction of automated late payment penalties, announcing that these penalties will continue to be issued on a risk-assessed basis rather than automatically.  No detail was given in the press release on whether HMRC plans to move to automated penalties for late payment in the future.

Upcraft says that these further changes to the RTI penalty regime at such a late stage may be “a last minute admission by HMRC that the data they are holding is too poor to allow automated late payment penalties to be issued”, and notes that many PAYE schemes are still experiencing discrepancies in their liabilities.  Learn Payroll commented that the original reason given for delaying automated penalties was to allow more time for employers who were struggling to adapt to the requirements of RTI to make the necessary changes.  By contrast, no explanation was offered in the HMRC press release announcing this 3 day tolerance.  However, in light of the recent HMRC consultation on the future of penalties, it may be that HMRC is seeking to fulfil one of the aims of the consultation, namely to consider “whether, and if so, how it should differentiate between those who deliberately and persistently fail to meet statutory deadlines or to pay what they should on time, and those who make occasional and genuine errors”.

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