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Tax Penalties – When you can’t pay PAYE or National Insurance on time

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Tax Penalties – When you can’t pay PAYE or National Insurance on time

Reviewed: 19th April 2017

If you cannot pay your PAYE and National Insurance contributions on time, the tax penalty regime in this country can quickly compound your debt situation, and ultimately cause insolvency for your business.

HMRC are quick to act if they think your business will not recover, so it is important to stay in contact with them if you are in this situation. Seeking professional help in dealing with HMRC is a good idea – it instils confidence in your company’s ability to repay any arrears, and shows that you take the debt seriously.

So what is the sequence of penalties that is applied when you cannot pay, and what can you do to get back on track?

Late payments of PAYE

As far as PAYE is concerned, the penalty amount increases over the period of a tax year, depending on the number of defaults. HMRC also charge interest on the overdue amount from the due date, to the date you pay.

There is no default for the first late payment in the tax year, then these penalties are applied:

  • 1-3 defaults: 1% of the overdue amount
  • 4-6 defaults: 2%
  • 7-9 defaults: 3%
  • 10 or more defaults: 4%

If you have not paid in full within 6 months, an additional penalty of 5% of the outstanding amount is applied. After 12 months of non-payment, another penalty of 5% is added. 

Even if you make a partial payment during the tax year, you will still be charged a late payment penalty. 

Arrears of National Insurance

HMRC may apply a 5% penalty for late payment of Class 1A and Class 1B National Insurance contributions, 30 days after the due date. An additional 5% becomes due after 6 months of non-payment, with a further 5% penalty being applied after 12 months.

So how can you mitigate the risk of tax penalties?

Although it can be daunting to contact HMRC about non-payment, you need to let them know that you cannot pay before a payment is due if possible. They may be more open to offering your company more time to pay, and early contact shows that you take the situation seriously. 

Time to Pay (TTP) arrangements

A Time to Pay arrangement generally offers 3-6 months in which to pay your arrears of tax and NI, although some businesses are able to negotiate up to 12 months. Presenting facts and figures to support your request for more time to pay will strengthen your case, and reduce the perceived risk for HMRC.

Supporting information should include cash flow, sales, and profit forecasts for the following six months at least – essentially, HMRC want to see that your situation is temporary, and that you are unlikely to become insolvent.

Professional help and support

HMRC generally respond positively when a professional is brought in to help a company in financial distress. The input of a licensed insolvency practitioner instils confidence in the figures presented when an application is made, and can make a huge difference to the long-term outcome for the company.

Real Business Rescue has many years’ experience in dealing with HMRC. We understand their systems and goals, and can tailor your application accordingly. Negotiations can be particularly stressful for directors unaware of how tax officials operate, and we can help in this respect by taking responsibility.

With 55 offices across the UK, you’re never far away from expert and confidential advice. We can quickly establish a plan for more time to pay, call one of the team to arrange a same-day confidential consultation free-of-charge.


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