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Are Your PAYE payments in Arrears or Are You in Debt to HMRC?
PAYE Arrears can be intimidating. If you are a business owner facing financial pressure and are having trouble paying HMRC, you may have accumulated arrears of tax in relation to Pay as You Earn (PAYE) and National Insurance Contributions (NIC). HMRC have a strict process and various powers in dealing with late payment and are able to quickly identify late payers.
Since the introduction of Real Time Information (RTI) for filing monthly online payroll returns, HMRC are more efficient in gathering information about your business every time you pay employees. HMRC’s systems allow it to automatically recognise when tax payments have not been made and the non-payment is flagged up to HMRC’s Debt Management and Banking (DMB) department.
If you cannot pay your PAYE taxes, then HMRC will be swiftly on to your business to collect the amount owing.
What do PAYE payments include?
Your PAYE tax bill will include:-
- Employee income tax deductions
- Class 1 and 1B National Insurance
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
What to do if have PAYE Arrears with HMRC?
HMRC expects payments to be made on time with monthly PAYE payments for all businesses being set for the 22nd of the month (or the 19th day of each calendar month if paying by cheque through the post).
If you cannot pay your PAYE liability and tax bill, then HMRC will take enforcement action to retrieve the money.
Therefore, if you do not feel that you are going to manage to pay your PAYE debt, then it is important that you call HMRC as soon as possible. Whilst it may not stop interest or penalties accruing on late payments, you may be able to agree a Time to Pay Arrangement with them.
What are the penalties and interest on PAYE arrears?
HM Revenue & Customs will charge late payment penalties on PAYE amounts that are not paid in full or not paid on time.
Number of defaults in tax year
Penalty percentage applied to the amount that is late in the relevant month
|1 to 3||1%|
|4 to 6||2%|
|7 to 9||3%|
|10 or more||4%|
Daily interest will continue to accrue on all unpaid amounts from the due and payable date to the date of payment.
A late payment penalty is charged if you pay less than what is actually due and if this amount is still outstanding after six months then an additional penalty of 5% is charged on the amounts unpaid.
Failure to report real time information (RTI)
The RTI online software provides employers with a Full Payment Submission (FPS) which tells HMRC about payments to employees and what deductions you have made.
You will receive a penalty if your FPS is late or you do not send the information online. The penalties are calculated as follows:-
|Number of employees||Monthly penalty|
|1 to 9||£100|
|10 to 49||£200|
|50 to 249||£300|
|250 or more||£400|
If you are over 3 months late you can be charged an additional 5% of the NIC that should have been reported.
If you do not submit the FPS, then HMRC will raise an estimate of how much HMRC thinks you should pay based on previous submissions and payments and penalties will also be added to the amount owed.
What will HMRC do if I accrue PAYE Debt?
HMRC will take a number of steps in order to enforce payment. The most important lesson to understand is that you should not do nothing as this will only make maters worse. These are some of the methods which HMRC will use as part of their enforcement process:-
If your company is experiencing cash flow difficulties and cannot pay the PAYE, then HMRC will start their recovery process by issuing threatening demand letters to take immediate action.
It is important that you do not ignore these letters, as if the company ends up gong into liquidation, the letters may prove to be a key date in identifying the time when the company became insolvent.
This might have implications for you as a director in relation to wrongful trading as you may become personally liable for the losses incurred to creditors after this date.
Time to Pay Arrangement for PAYE
If you are unable to make payment for your PAYE you should consider contacting HMRC as soon as possible. It is best to require a Time to Pay arrangement before payments fall due and it is important to show how the business has cut costs. You may be able to negotiate a longer payment plan on your overdue tax without negatively affecting your short term cash flow problem. However, HMRC are unlikely to agree to instalments over more than 12 months or to payment holidays.
However, HMRC will require that you disclose:-
- The reasons why you are unable to make payment
- How the business is trying to pay off the amount outstanding (e.g. raising finance; waiting for a debt to come in; negotiating with the bank for further banking facilities)
- How much you can pay immediately and how long it will take to pay the balance
Whilst a business might be able to agree a Time to Pay arrangement in relation to a particular outstanding balance, HMRC will ensure that the company continues to meet obligations in relation to future PAYE liabilities. HMRC will generally only accept one arrangement in a period of 12 months and are unlikely to want to negotiate if you fall behind again.
If you fail to maintain the Time to Pay arrangement or perhaps you fall behind in future payments, HMRC will bring the arrangement to an end and seek other alternative routes to obtain payment.
Enforcement Action for PAYE Arrears
HMRC do not need a court order before taking bailiff action and will take action against habitual defaulters.
If the debt remains unpaid, HMRC will issue a notice of enforcement which will grant your business a period of 14 days to pay the debt in full. Once it is issued, it is not possible to agree a Time to Pay arrangement with HMRC.
Under the Taking Control of Goods Regulation 2013, this enforcement notice enables HMRC to send in bailiffs to identify, seize and sell goods to settle outstanding debts.
A visit from the enforcement officer will result in additional charges to the company and if you are unable to pay immediately, the bailiff will take a note of the assets and you will be asked to sign a ‘controlled goods agreement’.
If the tax is not paid within a further five days, the bailiffs will return and confiscate the assets and auction them to settle the debt.
Clearly, the presence of bailiffs is a disruption to the business even if they are not seizing goods and it is important that you contact us as soon as you receive the Notice of Enforcement so consider your options.
Winding Up Petition
As a last resort, if HMRC are unable to recover the amount outstanding they will issue a winding up petition against the company. The HMRC enforcement team based in Durrington Bridge House will take the lead in this process through in house solicitors. If the petition is successful the company will be wound up through the court via a Compulsory Liquidation.
If you receive a petition please call us on 020 8444 2000 or email firstname.lastname@example.org for a confidential, no obligation discussion with one of our team.
Directors Personal Liability for PAYE Arrears
Consistent PAYE Arrears is an obvious indicator of insolvency. In the case that you know your company is insolvent but continue trading, or act in a way which does not put creditor interests first, there is the possibility you will be held personally liable for some or all of your company debt.