End of year payroll, P11D(b) & P11D penalties

This article considers the common penalties that businesses and employers may face in connection with subcontracting and payroll operations.

In some instances, there are grounds for reduced penalties on the basis of ‘reasonable excuse’ but this is complex and beyond the scope of this article.

Payroll ‘end of year’ late filing penalties

Failure to submit payroll ‘year end’ forms by 19 May result in an automatic penalty of £100 per month for each 50 employees (or part thereof). This penalty is aggregated every month for the first 12 months so that a 3 months delay will give rise to a £300 penalty.

If the delay exceeds 12 months then a second penalty arises equal to the amount of PAYE or NIC due and unpaid after 19 April following the tax year.

One seriously bad point concerning the HM Revenue & Customs service is that employers are first notified of any penalty after 4 months delay – when arrives the demand notice for £400!

It is therefore very important for employers to retain proof of postage or e-filing and to know whether they have an obligation for file year end forms for now dormant companies or inactive or small businesses.

P11D(b) late filing penalties

The form P11D(b) is the employer’s return calculating the amount of Class 1A national insurance due in respect of employee’s and director’s taxable benefits and expenses, included van, car and fuel benefits, etc.

If the form is filed after 6 July there is an automatic penalty of £100 per month for each 50 employees (or part thereof) for the first 12 months, however, I understand that restriction may be applied, with the penalty reduced to the amount of unpaid Class 1A on the due date.

Where the failure to files form P11D(b) exceeds 12 months a penalty may be imposed but limited to the total amount of Class 1A nation insurance due and unpaid after 19 July following the tax year.

Penalties for late and incorrect P11D

Employers should submit details of benefits or expenses paid to employees and directors on forms P11D and P9D by 6 July, however, unlike a P11D(b) penalty the late submission of forms P11D does not give rise to any automatic penalty.

If HM Revenue & Customs wish to charge a penalty then the employer will be notified of the Revenue’s application to a tax tribunal for permission to charge a penalty of up to £300 per late P11D. Then provided the forms are filed before the tribunal hearing the penalty can be avoided. If an employer delays any further then HM Revenue & Customs can impose a daily penalty of up to £60 per late P11D.

It is important to get the information right as if a form is found to be inaccurate then an employer may be liable for a penalty up to £3,000 per incorrect P11D.

Penalty changes from 2010/11

Businesses and employers should note that HM Revenue & Customs are in the process of modernising payroll penalties (i.e. read increasing them) and so from 2010/11 the rules will change and it will not be in favour of businesses.

If you have any queries then please call or email me.

copyright ©2009

This article is for discussion purposes only and does not represent advice on which you should act without consulting a professional as tax legislation is complex and changes frequently.

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