Section 230, Schedule 50: Penalties: Late Filing, Late Payment and Errors
Summary
1.Section 230 introduces Schedule 50 which amends Schedule 24 of Finance Act 2007 (FA 2007) (for returns under the PAYE Regulations and the Construction Industry Scheme (CIS)) and Schedules 55 and 56 to Finance Act 2009 (FA 2009) (penalties for failure to make returns and failure to make payment on time) to provide, as a consequence of the introduction of Real Time Information (RTI) from 6 April 2013, for penalties to apply where the Real Time Information returns and payments required under the Income Tax (Pay As You Earn) Regulations 2003 (the PAYE Regulations) are not made on time or the returns are inaccurate.
Details of the Schedule
2.Paragraph 1(3) inserts new sub-paragraphs (1ZA) to (1ZD) so that penalty notices for inaccuracies that occur more than once during a tax year are required to state only the year in which they occurred.
3.Paragraph 3 removes RTI returns from the definition of “penalty date” in paragraph 1(4) of Schedule 55 FA 2009. It also inserts new paragraph 1(4A) to permit the Treasury to amend item 4 of the Table at the end of paragraph 1 of Schedule 55 FA 2009 as a consequence of any amendment to the PAYE regulations.
4.Paragraph 5 removes RTI returns from paragraph 2 of Schedule 55 FA 2009, which means the penalties set out in paragraphs 3 to 6 of that Schedule do not apply to RTI returns.
5.Paragraph 6 inserts new paragraphs 6B to 6D into Schedule 55 FA 2009. New paragraph 6B provides that paragraphs 6C and 6D apply where the return is an RTI return.
6.New paragraph 6C provides for a penalty to apply where a return is late. No late filing penalty will arise in the “initial period”, which is designed to provide some flexibility for new employers filing their first RTI returns, and there will be an unpenalised filing default each tax year for each PAYE scheme. The paragraph also provides that a person is only liable to one penalty in each tax month and that where a person has elected under the PAYE Regulations to be treated as a different employer for different groups of employees, new paragraph 6C will apply to each PAYE scheme.
7.The Commissioners for Her Majesty’s Revenue and Customs (HMRC) are provided with a power to set the duration of the “initial period” and the size of the late filing penalties in Regulations and to specify in Regulations the circumstances in which either the unpenalised default or the initial period are disapplied.
8.New paragraph 6D provides for a penalty for “extended failures”, that is where a return is outstanding for 3 months or more. This penalty is not automatic, and will be calculated at 5 per cent. of the amount that would have been shown as due on any missing return(s). These penalties may be charged together for several returns or separately for each return to which an extended failure applies. Sub-paragraphs (9) and (10) provide for the payment date of the extended failure penalty. This may be before the date of the penalty notice, but not before the end of the period of 3 months beginning with the day after the filing date.
9.Paragraph 7 substitutes paragraph 18(5) of Schedule 55 FA 2009 and inserts new sub-paragraphs (6) and (7) so that the quantum of the penalties assessed under this Schedule can be amended (rather than the assessment being withdrawn and replaced), where the original penalty assessment is based on an excessive tax liability. This provision applies to all late filing penalties within Schedule 55 FA 2009 and not just those applicable to RTI returns.
10.Paragraph 8 amends paragraph 19 of Schedule 55 FA 2009 in relation to RTI returns. As a consequence of the amendments, penalties in relation to such returns can be assessed within the normal time limits for all other penalties assessed under Schedule 55 FA09.
11.Paragraph 11 amends the definition of “penalty date” in paragraph 1(4) of Schedule 56 FA 2009 to make it clear that a late payment penalty arises on the day after the date specified in column 4 of the Table in paragraph 1 of schedule 56 FA09.
12.Paragraph 12 amends paragraph 6 of Schedule 56 FA 2009 to provide that penalties are incurred for each late payment relating to a tax year, rather than for each payment due during a tax year.
13.Paragraph 12(4) substitutes paragraphs 6(3) to (7) and inserts a new subparagraph (7A) into Schedule 56 FA 2009. The substituted paragraph 6(3) provides that the first default in relation to a tax year will not be liable to a penalty. Substituted paragraphs 6(4) to (7) detail how the quantum of a penalty is to be established and provide that an earlier penalty does not have to be recalculated should a later penalty be incurred in the tax year.
14.Paragraph 12(6) introduces new sub-paragraphs (8A) and (8B). New sub-paragraph (8A) provides that HMRC may in regulations specify the circumstances in which payment of less than the full amount due under the PAYE Regulations may be treated as full payment, and so not incur a late payment default. HMRC may also set out in regulations the circumstances in which the first default in a tax year will count as a default for penalty purposes.
15.Paragraph 13 introduces a new paragraph 9A into Schedule 56 FA 2009 to ensure that the quantum of tax-geared penalties charged under Taxes Management Act 1970, inaccuracy penalties and penalties for failure to notify chargeability to tax are not affected by penalties under Schedule 56 FA 2009. This provision applies to all penalties under Schedule 56 FA 2009 and not just those in relation to late payments under the PAYE Regulations.
16.Paragraph 14(2) substitutes a new paragraph 11(4A) of Schedule 56 FA 2009 to ensure that a late payment penalty can be reduced, rather than withdrawn and replaced, should the quantum of the tax upon which the penalty is based be reduced. This paragraph also inserts new sub-paragraph (4B) into Schedule 56 FA 2009 which makes it clear that such a reduction does not affect the penalty payment date, and that it can be made after the final date for raising the initial late payment penalty as set by paragraph 12 of Schedule 56 FA 2009. Paragraph 14(3) repeals paragraph 11(5) of Schedule 56 FA 2009, which permitted a supplementary assessment to be made in respect of penalties under paragraph 6 of that Act. This provision is not required as a consequence of the changes being made to paragraph 6 to effectively ring-fence each monthly late payment penalty.
Background
17.Under RTI, employers are required to provide HMRC with pay and deduction details on or before they pay their employees (unless the PAYE Regulations provide otherwise). The majority of employers will do this via their payroll software.
18.The increased frequency of returns under RTI could lead to an increase in the number of inaccurate returns submitted by employers. When an inaccuracy is made on an RTI or Construction Industry Scheme return and is repeated in subsequent returns, this legislation allows HMRC to notify the penalties together rather than individually, as would be required under the current provisions.
19.If the pay and deduction information is not received within the statutory period then a late filing default will arise. This may lead to a late filing penalty under the provisions inserted into Schedule 55 FA09 and described above.
20.PAYE payment obligations are not changing under RTI. All employers must continue to pay HMRC the sums deducted from the payments to their employees within 17 days after the end of the tax period where payment is made by an approved method of electronic communications, or within 14 days after the end of the tax period where payment is made by any other means. If these payments are not received in full and on time a late payment default will arise, which could lead to a late payment penalty. From April 2014 these late payment penalties will be automated and will be charged in-year, rather than after the end of the tax year.
