Payroll insight
If an employer enters into a PAYE settlement agreement (PSA), then the figure payable is normally computed and agreed over the summer following the tax year in question and any grossed-up PAYE and class 1B NICs settled by the employer by 19 October (22nd for electronic payment). Penalties for not complying are the same as the other PAYE penalties, and for the class 1B NICs the five percent surcharge as described in the previous paragraph can be imposed. Appealing penalties Penalties for both late filing and late payment are automatic and HMRC has no discretion over their application or amount. If an employer wishes to appeal the penalty, this will need to be based on a ‘reasonable excuse’ or, less frequently, ‘special circumstances’. Reasonable excuse is well-established in UK tax law and has been considered and tested in many tax cases before the UK tax tribunals. Points to bear in mind include: ● There is no statutory definition for ‘reasonable excuse’, which is a matter to be considered in the light of all the circumstances of the particular case. What is reasonable may differ from person to person depending on the particular circumstances and abilities. ● A shortage of funds will not be accepted as a reasonable excuse, unless this is attributable to events outside the person’s control, such as waiting for payment from another party where for reasons that could not have been foreseen, such as insolvency, this is not possible. ● Ignorance of the law does not constitute a reasonable excuse. ● Finally, if the ‘reasonable excuse’ comes to an end, then the failure or obstruction needs to be rectified without unreasonable delay. Employer compliance reviews If during an employer compliance review Table B: Penalties for late payment Number of late payments in year
HMRC determines that a return under RTI or another return such as P11D or P11D(b) is inaccurate, the penalties which apply are based on the potential loss of revenue to the Exchequer and are governed by the provisions set down in schedule 24 to the Finance Act 2007 as follows: ● careless inaccuracy – 30% ● deliberate but not concealed inaccuracy – 70% ● deliberate and concealed – 100%. It is possible to mitigate these
against a notice of underpayment on one or more of the following grounds: ● that at the date set in the notice, no arrears were owing (i.e. the employer had not breached minimum wage legislation in respect of the worker(s) named in the notice). A successful appeal will lead to the notice being rescinded ● that any requirement in the notice to pay a sum to a worker was incorrect, either because no sum was due to a particular worker or because the amount specified was incorrect. A successful appeal will lead to the notice being rectified ● that the amount of the penalty specified in the notice is incorrect. A successful appeal will lead to the notice being rectified. HMRC, which administers the NM/LW on behalf of the Department for Business, Energy and Industrial Strategy (BEIS), has set out the most common NM/LW errors in the December 2016 edition of its Employer Bulletin . These reasons remain the same today, and payroll professionals should be vigilant of the following: ● not paying the right rate (e.g. missing an employee’s birthday increase) ● making deductions from wages which reduces the employee’s pay below the correct NM/LW rate ● including top ups to pay that do not qualify for NM/LW ● failure to classify workers correctly, perhaps by treating them as self-employed or volunteers ● failure to include all the time a worker is working (e.g. when shutting up shop, waiting to clear security or travelling between customer appointments). Perhaps the most difficult one of these to flag to an employer is classification of workers; for example, payroll professionals will not necessarily be aware that an employer has decided to treat someone as self-employed. Practitioners should have at least one ‘due diligence’ conversation with the employer each year (but preferably more often than that) to ensure that they have covered this point – especially in small and growing private businesses and charities, but also in public sector entities. Conclusion It’s a jungle out there! So, great care is needed with payroll compliance as failure to do so can be costly in terms of penalties. n
...Penalties for failing to pay the NM/LW are
extremely punitive ...
penalties by way of either a prompted or unprompted disclosure: prompted – 15%, 35% and 50%; unprompted – 0%, 20% and 30%. Where there are accusations of mistakes, carelessness, or deliberate default the employer may be better to appoint an agent who specialises in this area to negotiate on their behalf with HMRC. National minimum wage Penalties for failing to pay the NM/LW are extremely punitive at 200% of any arrears owed to the worker and a maximum penalty of £20,000 per worker. Note that any penalty is reduced by 50% if the unpaid wages and the penalty are both paid within fourteen days. An employer’s brand and reputation can also suffer if there is a NM/LW breach as HMRC ‘names and shames’ employers that are penalised. Under section 19C of the National Minimum Wage Act 1998, the employer may appeal to an employment tribunal
Penalty applied to amounts paid late Disregarded – late payment warning letter issued
1st default
2nd, 3rd, 4th defaults 5th, 6th, 7th defaults 8th, 9th,10th defaults
1% 2% 3%
11th,12th late payments
4%
Any amount paid six months late
5%
25
| Professional in Payroll, Pensions and Reward |
Issue 46 | December 2018 / January 2019
Made with FlippingBook - Online magazine maker