PAYE Penalties

Reminder to employers about late filing penalties

HMRC’s latest Employer Bulletin provides a timely reminder about PAYE late filing penalties.

The Quarter 1 late filing penalty notices were issued last month and continue to be issued on a risk assessed basis. A penalty will not be charged for delays for up to three days after the statutory filing date. HMRC will however contact employers who persistently file after the statutory filing date but within three days, and they risk being considered for a penalty.

HMRC won’t necessarily charge a penalty for the first month in the tax year that an employer fails to file on time. This is referred to by HMRC as the ‘first un-penalised default’ and it will be displayed on an employer’s penalty notice as a ‘zero penalty charge’. There is a right of appeal against the creation of this un-penalised default where an employer believes they had a reasonable excuse for not filing on time.

Under the new online appeals service, if an employer does not agree with a penalty it is quicker and easier to appeal a PAYE penalty. This can be accessed via PAYE Online.  An appeal made this way will normally get processed much faster than if made in writing. Once the appeal has been received by HMRC they will issue an online message to the employer to let them know how the appeal is progressing.

When using the online appeals service, employers must select the reason for their appeal from the drop down menu and avoid using ‘Other’ if there is a suitable alternative. ‘Other’ should only be used if the reason for an appeal doesn’t fall into the categories in the online system.

Where an employer receives a penalty notice which includes multiple penalty defaults and the business believes they had a reasonable excuse for each, then an appeal must be made against all of the defaults shown on the penalty notices, including any default within a zero charge. If the appeal is accepted, the un-penalised default can then be applied to a later month, thereby reducing the value of any future penalty charges the employer might incur.

Non-deductible and non-exempt expenses

From 6th April 2016, any expenses that an employer reimburses to their employees and which are fully deductible from their earnings are no longer subject to tax and NIC, provided they are not part of a relevant salary sacrifice arrangement. There is no need for employers to include them on a form P11D nor for the employee to submit a claim for tax relief to HMRC. Furthermore, PAYE dispensations no longer apply.

Employers who wish to pay the tax and NIC on non-deductible expenses can do so by entering into a PAYE Settlement Agreement with HMRC.

For the tax year ending 5th April 2017, expenses payments that are not fully deductible should not be reported on form P11D but instead should be treated as earnings and the full amount should be subject to tax and Class 1 NIC.

For mixed expense payments, e.g home telephone rental, if the allowable element of the expense can be clearly identified at the time of payment, only the non-exempt amount will need to be treated as earnings and have tax and NIC applied to it.

If the non-exempt amount cannot be clearly identified at the time of payment, then tax and NIC must be deducted from the total expense payment. The employee can then claim tax relief for the exempt amount related to business use in the normal manner.

Where a benefit is provided that would have previously been included in a dispensation and it is not provided under a relevant salary sacrifice arrangement, the exemption applies in the same way as for paid/reimbursed expenses. If the benefit is not fully matched by a deduction, the full value of the benefit should be reported in the normal way.

Details of exemption for amounts which would otherwise be deductible can be found here