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What happens if my company falls behind with PAYE?

Posted on: Friday 26th June, 2020

What happens if my company falls behind with PAYE?

As an employer you’re obliged to deduct income tax and National Insurance from your employees’ wages, and pay the total over to HMRC each month or quarter. Failing to do so can cause serious financial difficulty for your business due to the ongoing penalties and interest added by HMRC, and also their awareness that your company may be experiencing a decline.

HMRC will expect you to contact them as soon as you know you won’t be able to pay, or as soon as possible following a missed payment. This can be extremely beneficial in the long-run, as they may be willing to negotiate additional time to pay.

Late payment penalties applied by HMRC

HMRC base their late payment penalty regime on the number of defaults in a tax year. The first late/missed payment doesn’t count as a default, but after this the penalty is calculated as a percentage of the outstanding amount owed, as follows:

  • 1-3 defaults: 1%
  • 4-6 defaults: 2%
  • 7-9 defaults: 3%
  • 10 or more defaults: 4%

Paying less than the full amount owed also incurs a penalty. If after six months you haven’t made a full monthly or quarterly payment an additional 5% penalty is added, which increases by a further 5% after 12 months.

Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

Interest on PAYE arrears

Interest is charged on a daily basis on any overdue PAYE payment, from the day the payment is due until the amount is paid in full. The current interest rate is 3.25% (2019/20 tax year).¹

What should you do if you have PAYE arrears?

  • Make a note of the reason you’ve paid late, even if it’s only one day, and retain any supporting evidence as you may need it in the future
  • Don’t delay paying your arrears – it’s important to get back on track as soon as possible
  • Formulate a case for extra time to pay – HMRC sometimes offer companies a Time to Pay (TTP) arrangement if they believe the financial issues are temporary, and the business has a good record of payment in the past.
  • Seek professional assistance with these negotiations – this expert-level support offers confidence to HMRC that any proposed figures are credible and affordable for the company.

If a TTP isn’t offered

In some cases HMRC will not offer extra time for PAYE arrears, and this could introduce a risk of winding up. If your company owes other debts and cannot afford to pay, and there are no other viable options such as alternative finance, voluntary liquidation might be the best option.

Although the company would ultimately close down, as a director you may be eligible for redundancy pay and other statutory entitlements. For more information on PAYE arrears and what happens to your company, and also eligibility for director redundancy, call one of our experts at Redundancy Claims UK. We can arrange a free same-day consultation to discuss your best options. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.

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