If you are unable to pay your PAYE, you will get an automated reminder from HMRC, which urges you to settle your outstanding dues promptly. This correspondence will also detail the payment methods available.
Should you fail to manage your PAYE debts adequately, HMRC will escalate the matter[1]Trusted Source – GOV.UK – HMRC Late Payment Penalties. Initially, they impose late payment penalties, which vary depending on your history of defaults.
If you are completely unable to make payments, the penalties will gradually increase. This escalation can lead to increasingly stern warnings and, eventually, legal action.
In severe cases, under the Insolvency Act 1986[2]Trusted Source – GOV.UK – Insolvency Act 1986, HMRC has the authority to force your company into liquidation through a Winding-up Petition, a step they take more frequently than other creditors.
What is the Penalty for Late Payment of PAYE?
The penalties for late payment of PAYE (Pay As You Earn) in the UK depend on the frequency of the late payments and the amount of time the payment is overdue.
Delay
Penalty
1 – 3 Days
No penalty, but HMRC might contact you to ensure future payments are made on time.
> 3 Days
Penalties start to apply. These penalties are calculated as a percentage of the amount that is late. The rates are – 1% to 5% of the unpaid tax, depending on the number of times payments have been late in a tax year.
6 Months
An additional penalty of 5% of the unpaid tax at that date.
12 Months
Another 5% penalty on the still unpaid tax.
These penalties are in addition to any interest that HMRC may charge on the unpaid amounts from the date the payment was due until the date payment is made.
HMRC may consider reasonable excuses for late payment on a case-by-case basis, and penalties may be reduced or waived if you can demonstrate that you had a reasonable excuse for the delay.
Always communicate promptly with HMRC if you anticipate payment difficulties.
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What are the Options When You Can’t Pay PAYE arrears to HMRC?
We have a great deal of experience helping small companies that cannot pay PAYE and have HMRC arrears issues.
As well as being experienced negotiators with HM and Revenue, we can advise you of the full range of options available for someone in your situation. With PAYE specifically, these include:
Time to Pay Arrangement (TTP) for PAYE
If you’re unable to pay in full, you may qualify for a Time to Pay Arrangement. This is a formal agreement with HMRC that allows you to spread your payments over a longer period, which can be tailored to your financial situation.
To set this up, you’ll need to contact HMRC directly, provide details of your financial situation, and propose a payment plan.
In order to qualify, you will be expected to demonstrate that the company can afford to repay the PAYE over a maximum of 12 months, that you have proper compliance measures in place for tax payment management for all forthcoming tax deadlines.
Company Voluntary Arrangement
For many companies that can’t pay PAYE, have corporation tax arrears, or have VAT debt, these tax problems are often a symptom of a larger problem.
If other creditors are threatening, a Company Voluntary Arrangement (CVA) can offer a better solution than a Time to Pay Arrangement. You can delay tax and creditor payments for up to 5 years, and the debt itself can be discounted!
CVA is considered an insolvency procedure, but it does not mean the company goes bust. It is a rescue mechanism that can help a company get back on its feet. In the right circumstances, the CVA can be a formidable company rescue tool.
Insolvency Options
If your company cannot meet its PAYE obligations and is insolvent, Creditors’ Voluntary Liquidation (CVL) may be an option. This process involves voluntarily winding down your business under the guidance of an insolvency practitioner.
In a CVL, the company’s assets are liquidated, and the proceeds are used to pay off creditors, including settling outstanding PAYE debts to HMRC. This action effectively writes off any remaining arrears once the assets are exhausted.
Could You be Held Personally Liable for PAYE arrears?
As per Section 121C, Social Security Administration Act 1992, PLN’s give HMRC the power to hold company directors personally accountable in situations where there appears to be fraud or serious neglect.
Choosing the Right Path: Expert Advice and Next Steps
Facing a company closure? Don’t navigate the complexities alone. Get expert advice from our team of licensed insolvency practitioners at Company Debt. With over 100 years of combined partner experience and accreditations from professional bodies like R3 and the Insolvency Practitioners Association, we can help you understand your options and explore the best course of action for your situation.
Our services include comprehensive financial analysis, negotiations with creditors, and assistance with legal filings. We are committed to protecting your interests and those of your creditors, and all discussions are held in strict confidence.
Speak directly with one of our experienced advisors by calling 0800 644 6080. This initial consultation is free and can help clarify your options and the best path forward.
If you prefer written communication or need to provide detailed information about your situation, email us at info@companydebt.com. An advisor will respond promptly to discuss your enquiry further and provide transparent pricing information for our services.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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