Real Time Information (RTI) penalties

RTI reporting became compulsory for most employers on 5 April 2013; some big employers joined the regime in April 2012.

RTI at a glance

Under RTI employers submit payroll information to HMRC in real time. Employers who are using RTI are no longer required to submit forms:

  • P14 and P35, or
  • employee starter or leaver forms P45, P46 and P46 (pen)

RTI filing comprises various different electronic submissions at different times:

  • A Full Payment Submission (FPS) is made on or before an employee is paid. This provides details of the employee, their pay and deductions. Employers and pension providers must submit an FPS 'on or before' they make a payment to an employee or pensioner. If they still have information to send after 5 April, they can send this on an FPS until 19 April, then on an Earlier Year Update (EYU) after that.

    New employers are allowed up to 30 days to file their first FPS.

  • An Employer Payment Summary (EPS) is made each month, this shows any adjustments to what is paid to HMRC for SMP, SSP etc.
  • Nothing to report returns, the EPS is also used to notify HMRC if no payments have been made in the month, when no payment is made, employers should submit the EPS by the 19th following the end of the tax month
  • An Earlier Year Update (EYU) this is made following the end of the tax year in order to correct errors or make adjustments to information submitted in earlier years.
  • Employee forms P60 and P11D employers must still provide employees with a P60 end of year summary by 31 May following the tax year and a P11D by 6 July following the tax year.

Software

HMRC provides very basic free software which can be used for up to ten employees. Most employers find it simpler to purchase their own RTI-enabled payroll software to generate their returns.

Planning point: HMRC "accredits" software for RTI, however as not all software has always been capable of making Earlier Year Updates it is advisable to check the limitations before purchase.

Penalties for inaccurate returns

  • 2016/17 onwards and 2015/16 - see table below for concessions.
  • 2014/15 late filing penalties were phased in from the following dates for in-year returns.
    • from 6 October 2014 for employers with 50 or more employees
    • from 6 March 2015 for employers with fewer than 50 employees
  • 2013/14 penalties may apply to in-year returns and the final FPS.
  • 2012/13 penalties may be charged after the end of the tax year, based on the final FPS for the year.

Late payment penalties 

Penalties under Sch 56 FA 2009 apply to employer payments of PAYE and NI whether paid monthly or quarterly.

Since April 2015 HMRC has appled automatic in-year penalties, subject to a tolerance of £100 (difference between employer's payment and what has been reported to HMRC). As calculation is automatic and based on the number of late payments the automatic system will adjust later penalties rather than recalculating the earlier months already passed, as under the current Sch 56 FA 2009 regime.

RTI penalties - at a glance 

Penalties

2016/17 onwards

2015/16

2014/15

2013/14

2012/13 (RTI pilot participants)

Late filing: of in-year Full Payment Submissions (FPS) and EPS

All employers may be up to 3 days late in filing returns without penalty until April 2019

Relaxation in reporting for micro employers until April 2016. 

All employers may be up to 3 days late in filing returns without penalty until April 2016.

New penalty regime starts on 6 Oct 2014 for employers with 50+ employees.

Exemption for small employers until 5 March 2015

The relaxation in reporting for micro employers until April 2016 is probably not for new employers from 6 April 2014 but guidance is unclear

All employers may be up to 3 days late in filing returns without penalty

Special rules apply in numerous situations (see the tables below)

No penalty provided reporting of the final payment to the employee is made by 19 May following end of tax year

No penalty provided reporting of the final payment to the employee is made by 19 May following end of tax year

Late filing: final submission

As 2014/15

As 2014/15

Penalty under schedule 55 FA 2009

As 2013/14

Penalty under schedule 55 FA 2009

£100 per 50 employees for each month

deadline by 19 May 2014, however employers are unable to submit electronically using their own softward after 19 April.

Penalty under schedule 55 FA 2009

£100 per 50 employees for each month

Inaccurate returns

See Penalties: Errors in returns and documents

As 2014/15  As 2014/15

 Sch 24 FA 2007 penalties as 2013/14

A penalty under Sch 24 FA 2007 applies to both in-year submissions and the final FPS of the year

No penalty for in-year submissions, a penalty under Sch 24 FA 2007 will apply to the final FPS of the year

Late payment of PAYE/NI

See Penalties: PAYE/ late payment

As 2014/15  As 2014/15

Penalties apply under the existing rules in Sch 56 FA 2009.

Automatic in-year penalties apply from April 2015.

Concession for IR35 companies.

Penalties apply under the existing rules in Sch 56 FA 2009.

Concession for IR35 companies.

Penalties apply under the existing rules in Sch 56 FA 2009.

Concession for IR35 companies.

 

RTI Penalties - in more detail

1. End of year penalties

  • Under RTI the employer files a FPS for the last payment of the tax year and there is no P35 or P14 to submit to HMRC. If the employer fails to report the end of year FPS there will be an end of year penalty. This should be notified by September following the tax year.

2. Penalties for inaccurate in-year RTI submissions

  • Penalties under schedule 24 FA 2007 (errors and mistakes in tax returns) apply to returns filed from 2013/14.

3. Late payment of PAYE

  • Late payment of PAYE penalties under schedule 56 FA 2009 continue to apply unchanged in RTI reporting.
  • Concession for personal service companies making a deemed employment payment under IR35, see IR35 reporting concession.

4. Late submission of in-year returns

  • These penalties were phased in as follows from: 
    • 6 October 2014 for employers with 50 + employees in a PAYE scheme.
    • 6 March 2015 for small employers with fewer than 50 employees
    • 6 April 2016 for employers with fewer than 10 employees who use relaxed reporting requirement.
  • In all cases the first late submission of the year is ignored unless the employer is registered with HMRC as an annual scheme. Late filing applies to FPS and EPS reporting. 
  • An EPA return is still required by the 19th of each month if there is no pay to report in a period.

Special rules for late filing penalties

1. All returns may be up to 3 days late without penalty

HMRC announced the following changes on 17 February 2015:

  • Anyone who has suffered a late filing penalty since 6 October 2014 and was 3 days late or less may appeal their penalty on the grounds that it was "not more than three days late".
  • This measure was originally only to apply until April 2016.
  • It was extended to April 2018 in September 2017 and to April 2019 in June 2018.
  • Employers who persistently file after the payment date but within 3 days may be contacted or considered for a penalty.

2. On or before reporting deadline: micro employers may file monthly

HMRC announced the following changes in August 2014:

  • A temporary relaxation of reporting arrangements for micro employers (nine or fewer employees). 
  • Existing but not new employers may report PAYE information on or before the last payday in the month until 5 April 2016.
  • This measure has been agreed presumably to allow those who run payrolls to go away for more than a week on holiday!

3. Small employers - up to 49 employees

4. Extra days allowed for filing FPS after pay day

One of the most confusing aspects of RTI is that employers are also given extra days to file return in further special circumstances

  • See table below

Micro-employers - up to 9 employees

  • A temporary relaxation of reporting arrangements for micro employers (nine or fewer employees). HMRC announced in August 2014 that existing employers with nine or fewer employees, who needed more time to adapt, could report PAYE information on or before the last payday in the month until April 2016.
  • This means that micro employers who were still finding it difficult to report PAYE information on or before the date they paid their employees would have more time to adapt their arrangements so that their business was ready for full real time reporting from April 2016.
  • Existing employers with fewer than 10 employees, who take advantage of the temporary reporting relaxation, must remember to use late reporting code ‘E’.
  • This arrangement does not apply to employees who commenced payrolls on or after 6 April 2014, however they were covered by the late filing exemption for small employers which runs until 5 March 2015.
  • See RTI HMRC has allowed you to report monthly.

For example: Alpha Ltd is a micro employer who calculates pay and pays its employees on a weekly basis. They pass their records to a payroll agent to run the payroll on the last pay date of the tax month. Alpha Ltd pays their employees on 10th April, 17th April, 24th April & 1st May. Under the relation agreement Alpha Ltd need not reports the payments weekly, instead they may be reported as if they had been made on the 4th May (the last payroll of the tax month plus 3 days grace). 

Special rules if an employer runs a FPS AFTER payday

This is possibly the most confusing aspect of RTI. There are further special rules that apply if a FPS report is filed late as follows (this reproduces HMRC's table, see link below)

SituationWhen to report
You have a reasonable excuse, eg a serious or life-threatening illness As soon as possible
Your employee doesn’t give you a P45 and is either paid less than £111 a week or has worked with you for less than a week Within 7 days of paying your employee
Your employees’ payday is on a non-banking day, eg weekend or bank holiday On the next banking day - but enter the regular payment date in the ‘payment date’ field and select ‘Reasonable excuse’ code G
You make a payment outside of your regular payroll, eg when paying commission or a bonus

Send by the 19th of the tax month after your original FPS for HMRC to show the correction in that month’s PAYE bill.

If your employee earns around £111 a week, set the ‘Payment date’ to that of the original payment. You don’t need to report loans

You pay your employee an expense or benefit where you must pay National Insurance, but not Income Tax, through payroll.This depends on the benefit. Within 14 days of the end of the tax month
You can’t calculate or report your employee’s pay in advance because it’s based on their work on the day, eg harvest workers paid based on how much they pick Within 7 days of paying your employee
You make certain non-cash payments to your employee As soon as possible within 14 days of the end of the tax month, or when you deduct tax and National Insurance (if earlier). For more complex situations (eg when exercising share options) it may be possible to report later - contact HMRC
You’re an existing small employer that HMRC have allowed to report monthly instead of the normal way Until 2016, you could choose to report monthly, on or before the last payday in the tax month. There are different rules for what to report in your FPS

 
Additional times when FPS may be filed late: HMRC have also concession that allow new employers to file late returns in other circumstances:

  • IR deemed payments, see IR reporting concession
  • New employers are allowed up to 30 days to file (see above)
  • You are up to three days late (see above)

HMRC's instruction is:

  • to put the reason for reporting after payday on your FPS.
  • If HMRC disagrees or you don’t send an FPS, they may send you a late filing notice.
  • You’ll only get one for the first late FPS you send each month.
  • See HMRC Running payrolls: submitting FPS after payday

Late reporting reason

Notifying HMRC of a late reporting reason

If an FPS is submitted late the employer should complete a ‘Late reporting reason’ field in their payroll submission (your software should provide you with the different choices) as per this table.

HMRCcodeSituationWhen to report
G You have a reasonable excuse (see below) As soon as possible
H You correct an earlier payroll report by sending an extra FPS Before your next regular FPS. Send by the 19th of the tax month after your original  FPS for HMRC to show the correction in that month’s PAYE bill
F You have an employee who’s either paid less than £111 a week or has worked with you for less than a week Within 7 days of paying your employee
D You pay your employee an expense or benefit where you must pay NICs, but not Income Tax, through payroll.  Within 14 days of the end of the tax month
F You pay your employee based on their work on the day (eg harvest workers paid based on how much they pick) Within 7 days of paying your employee
E You’re an existing small employer with fewer than 10 employees, and following the August 2014 announcement you’re exempt from reporting every time you pay them (see above) On or before the last payday of the month
A You’re an overseas employer paying an expat employee, or you pay them through a third party By the 19th of the tax month after making the payment
B You pay your employee in shares at less than market value Usually by the 19th of the tax month of giving them the shares. Contact HMRC for complex situations
C You make any other non-cash payment (eg vouchers or credit tokens) to your employee By the 19th of the tax month after making the payment

 

RTI late fiing penalty rates on or after 6 April 2014

 No of employees  Monthly penalty
 1-9  £100
 10-49  £200
 50-249  £300
250 + £400


Additionally there is a penalty of 5% of tax and NIC which should have been reported if you are more than 3 months late.

When penalties apply:

  • The size of the penalty based on the number of employees in the scheme.
  • Filing defaults will apply each month and will depend on returns not being received.
  • There will be one unpenalised default each year, with all subsequent defaults attracting a penalty.
  • Penalties will be charged quarterly, subject to the usual reasonable excuse and appeal provisions.
  • An additional tax-geared penalty may be applied if a return is outstanding for three months or more.
  • Regulations will be used to set the penalty rates, including any escalation in size for subsequent defaults.
  • Penalties are per scheme; employers with more than one scheme can be charged penalties for each.

The main changes aim to ensure penalties are based on the number of late payments relating to each tax year. Penalites will be "ring-fenced" so that if further defaults arise earlier penalties do not have to be recalculated. Changes will also permit a penalty to be amended once it has been issued, rather than it having to be withdrawn and reissued. The Government may use regulations to apply a relief from late payment penalties if the sums paid by the employer do not exactly match the figures shown as deducted on the RTI returns for the relevant period.

Legislation will amend the inaccuracy penalties. The assessment provision will be amended to allow a tax year to be treated as a tax period for the purposes of Schedule 24 to Finance Act 2007. This change will reduce the number of separate penalty assessments that have to be issued where errors are found.

Penalties are due within 30 days of the penalty notice.

Interest

From April 2014 HMRC will charge interest on any payments, including penalties, not made by the due date.

For 2013/14 interest was only charged if payment for the last month was not paid by the due date.

Tax-trap alert

Confusingly HMRC says that it “will continue to use a risk-based approach to identify employers who are not complying with their payment obligations and who therefore might be liable to late payment penalties. Where employers who are not complying with their obligations are identified, late payment penalties may be charged.”

Employers are strongly not advised to trust that advice, because experience of the Schedule 56 penalty regime has shown that HMRC will charge a penalty unless a late payment agreement is in place before the payment is due.

HMRC says that it will notify employers who may have defaulted on either a filing or payment obligation "as soon as possible" to enable them to get back to compliance quickly and avoid any further penalties for future failures.

Note that if an employer is making a persistent mistake in the in-year RTI return so each one is incorrect this could result in HMRC sending a separate penalty notice for each mistake; that is a lot of paperwork and administration.

Appeals

  • An employer may appeal against RTI penalties, subject to a 30 day time limit.
  • Appeal may be online from January 2015 or on paper.
  • Details of how to appeal are attached to penalty notices.
  • You cannot appeal a general notification (GNS) message. However if you appeal online HMRC will inform you by GNS as to whether your appeal is successful.

Grounds for excuse include "reaonable excuse". HMRC provides the following list of what it considers as a reaonable excuse:

  • data on the returns was incorrect
  • death/bereavement
  • filing expectation incorrect
  • filed on time
  • fire/flood/natural disaster
  • ill health
  • IT difficulty
  • missed correction/easement
  • no longer have any employees
  • no payments to employees
  • theft/crime
  • other

Source:

 


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