Payroll RTI Penalties Overview
A Comprehensive Guide to RTI Penalties
The term RTI stands for Real-Time Information. HMRC as per legislation confirmed that reporting RTI is compulsory for all employers who manage employees pay, this has been mandatory for most employers since the 5th of April 2013.
Related: If you have recently started operating as an Employer you might want to read 7 essential payroll tips to get you started correctly.
Under the real-time information (RTI) regime, employers are required to submit their payroll information to HMRC in real-time and are no longer required to submit certain old forms anymore. These forms include:
1. P14 and P35
2. Employee starter or leaver forms which include the following: P45, P46, and P46 (pen)
Filing PAYE under the RTI regime includes certain electronic submissions to be made at different intervals which can be done through payroll software, a payroll company or by outsourcing your payroll to a competitive Payroll Accountant or Payroll bureau. The filings are:
1. An employer payment summary
EPS is prepared every month with the purpose to highlight any adjustments made to what is paid to HMRC for SMP, SSP, etc..
2. Nothing to report returns
Employers should also send an EPS when no payments are made to HMRC in a certain month. When no payment is made, the employer is required to submit EPS on the 19th by the end of the tax month.
3. An earlier year update
An earlier year update is prepared at the end of the tax year to correct any errors (if any) or make amendments in information sent in previous years.
4. A full payment submission (FPS)
A full payment submission is prepared when or before an employee gets paid, it includes all the details about the employee, their pay and deduction. Employers are required to submit an FPS ‘on or before’ t making payment to their employees. However, if the employer still has additional information to send after 5th April, they can send this information through an FPS by the 19th April and then through an Earlier Year Update after that.
5. Employee forms P60 and P11D
Employers are required to provide a P60 end of year summary and P11D to their employees by 31 May and 6th July respectively, following the end of the tax year.
Software or Payroll Solutions
HMRC has made available a basic free payroll software that can be utilized for up to 10 employees. Most employers, however, find it convenient to purchase their own payroll software that is RTI enabled to trigger their returns or outsource their payroll to a reliable payroll accountant or accountancy firm.
“Tip: If you are not sure about the effectiveness of your payroll function you can utilise our PAYE health check service.“
Planning point: There are HMRC approved payroll software’s but make sure your software can perform earlier year updates before selecting it.
When will a penalty be charged?
You are bound to be charged a penalty by HMRC if the following apply:
- You submitted your full payment submission (FPS) late
- You did not send all the FPS
- You did not send in an EPS when no payment was made to any employee during the month
What are the penalties for making late payments?
According to Sch 56 FA 2009, penalties are applicable to employer payments of PAYE and National Insurance (NI) that is either paid monthly or quarterly.
HMRC has introduced automatic in-year penalties since April 2015, which are calculated automatically based on the risk involved and the number of late payments.
RTI penalties explained in more detail
1. End of year penalties
Under the RTI regime, an employer is required to file an FPS for the final payment of the tax year and in addition, there is no requirement for a P35 or P14 to be submitted to HMRC. However, if the employer fails to report the end of year FPS to HMRC, end of year penalty will be applicable. A notification is sent by September following the tax year.
2. Penalties for inaccurate in-year RTI submissions
According to Sch 24 FA 2007, penalties are applicable for inaccurate in-year RTI submissions for returns filed from 2013/14.
3. Late payment of PAYE
According to Sch 56 FA 2009, penalties are applicable for late payment of PAYE penalties which are unchanged in RTI reporting.
There is a special concession for personal service companies sending out deemed employment payment under IR35.
4. Late submission of in-year returns
Penalties for late submission of in-year returns are applicable as follows:
- 6 October 2014- for employers with 50 or more employees under a PAYE scheme.
- 6 March 2015- for small employers with more than 50 employees
- 6 April 2016- for employers with less than 10 employees utilizing relaxed reporting requirements
The first late submission of the year (in all cases) is ignored but only if the employer is not registered with HMRC as an annual scheme. The condition of late filing is applicable to FPS and EPS reporting.
The employer is still required to submit an EPA return by the 10th of each month if there is no payment to report during the accounting period.
You might be able to avoid a late filing penalty is you are a reasonable excuse.
“Tip: If you are unsure about appealing an RTI penalty you can speak to us about our payroll services and how we can assist in making an effective appeal claim.“
What are the RTI late filing penalty rates? Commencing on or after 6 April 2014.
The monthly penalty for late filing is dependent upon the number of employees
|Monthly penalty (£)||No. of employees|
You must remember that any penalty is due within 30 days of the issuing of the penalty notice.
What about charging Interest?
HMRC confirmed that from April 2014 it will be charging interest on payments including penalties which are not paid by the relevant due date. Before this interest was only charged for the previous month which was not paid by the due date.
Related: There might be further risks and complications applicable to you if you work within the contracting industry and use your own PSC to operate, read more about how the changes in off-payroll working in the private industry might impact you in the near future.
What about the tax-trap caution?
HM Revenue and Customs state that it plans to use a risk-based approach continuously to find employers who are failing to comply with their payment responsibilities and whoever is liable to pay penalties on late payments, making sure you apply essential processes to improve payroll can help reduce this risk. If an employer who not complying with their legal obligations is identified, they will be subject to late payment penalties.
Under the Sch 56 penalty regime, HMRC will always charge a penalty. However, there is an exception if a late payment agreement has been reached between HMRC and the employer before the due date.
According to HMRC, an official notification is to be sent to any employer who might have defaulted while filing or on a payment obligation as quickly as possible to ensure that they return to compliance rapidly and mitigate the risks for potential penalties for any failure in the future.
HMRC may send a separate penalty notice for each incorrect filing if they found out that the employer has been filing inaccurate in-year returns in a row.
Even though Payroll might seem simple, however, if done incorrectly the process can get complicated and costly very quickly. It is therefore always a wise decision to outsource this process to a reliable payroll accountant, this will enable the business owner to focus on the core business operations enabling the business to grow faster.
Clear House Accountants are specialist Accountants in London who have been operating payroll for a large number of businesses, implementing smart solutions and effective payroll processes. Speak to us to see how we can outsource your payroll function to give you more time to focus on your business growth.