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In today’s challenging business environment, with the recent increase in National Minimum Wage (NMW) rates and rising input costs like food and energy, it’s crucial to effectively manage your PAYE payments. While it may be tempting to utilize the funds deducted from your payroll to address immediate financial obligations, it’s important to approach this with caution.

Late payment interest of 7% is charged if payroll deductions are not paid to HMRC by the 22nd of each month. Moreover, late payment penalties are imposed based on the number of late payments within the tax year. Here’s a breakdown of the penalties:

  • For the first late payment: No penalty
  • Additional penalty after 6 months: 5%
  • Additional penalty after 12 months: 5%

If you have only one late PAYE payment to HMRC in the tax year and the outstanding amount is paid within six months of the due date, no penalty will be levied. However, if you make monthly payments and there’s a delay in their timing, even by one day, the penalties can quickly accumulate.

If you struggle to make your PAYE payments to HMRC on time, it is advisable to apply for a Time to Pay (TTP) agreement through your online business tax account on gov.uk. This arrangement allows you to spread your PAYE debt over a period of six months.

The TTP agreement will be automatically granted if the following conditions are met:

  1. All PAYE and CIS returns have been submitted.
  2. PAYE debt is below £15,000.
  3. There are no other outstanding tax debts.
  4. The application is made within 35 days of the PAYE due date.
  5. The TTP plan ensures the debt will be fully paid within six months.

If you are unable to meet the above conditions, it is recommended to contact HMRC on the payment support service at 0300 200 3825 to negotiate a TTP agreement.

By effectively managing your PAYE payments and adhering to the prescribed guidelines, you can avoid late payment penalties and maintain a healthy financial standing for your business. Contact us directly for more information on how we can help.