In this blog we’ll look closely at how you can manage PAYE payments if they’re overdue and other solutions to paying PAYE debt including contacting HMRC and making alternative payment arrangements if possible.
PAYE doesn’t just encompass employee’s income tax deductions but their Class 1 and 1B National Insurance payments, any student loan repayments and/or any applicable Construction Industry Scheme (CIS) deductions.
Owing PAYE or National Insurance Contributions (NICs) will be a reasonably good indicator that a business is undergoing some financial turbulence.
Unlike VAT, which is paid quarterly, PAYE is monitored using Real Time Information (RTI) for filing monthly payroll returns online so HMRC are automatically informed when tax payments haven’t been submitted on time or at all.
Payments are expected to be made on the 22nd of each month (or the 19th if the business is paying HMRC by cheque via the post).
HMRC will issue a series of escalating penalties for each default incurred within a relevant tax year:
Daily interest will continue to be accrued on all unpaid amounts from the due and payable dates until paid.
Additionally, a late payment penalty charge will be levied if the company pays less than the amount due with an additional 5% penalty applied if amounts are still outstanding after six months.
There are also penalties that can be incurred from failing to report real time information (RTI), specifically the Full Payment Submission (FPS) which automatically informs HMRC of what employees are paid and what deductions the company has made.
Penalties are received if FPS is late or not submitted and are based on the number of employees a business has:
If a business is three months in arrears then they can be charged an additional 5% of the NIC that should have been reported.
If no FBS is submitted or received then HMRC will estimate how much should be paid based on previous payments and submissions and will add this to the amount owed.
HMRC will now be taking a closer interest in where the money has gone because as they would expect the money to have been deducted from employees and ready to be paid.
If they suspect that a business has deliberately sought to avoid paying PAYE or NICs or have acted fraudulently in any way then they could issue a Personal Liability Notice (PLN) which will probably lead to an HMRC inspection of the business which could ultimately see directors made personally liable for any outstanding debts.
When it comes to enforcement the first thing HMRC will do is issue a demand letter which is the first step in their recovery process.
It might be tempting to ignore them if the business is struggling but while this is always a mistake, this is especially true in the case of demand letters as if the business later goes into insolvency then the letters could become evidence in proving the business was insolvent and therefore wrongfully trading at the date they were received.
The ramifications of this include directors possibly becoming personally liable for losses and debts incurred after this date.
If the debt remains unpaid after this then HMRC will most likely issue a notice of enforcement which gives the business 14 days to pay the debt in full or they will be visited by bailiffs to seize goods and equipment.
If the business is still unable to pay PAYE at this stage then usually HMRC would move to have the business wound up but as restrictions on winding up petitions still remain until the end of March 2021, this step might be delayed unless the cumulative debt is over £10,000 in which case the petition can proceed.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk says that although the situation is serious for businesses in this position it’s not unrecoverable if the directors act quickly.
He said: “The first thing directors and business owners that owe PAYE or other overdue debts to HMRC should do is get some impartial professional advice as soon as they can.
“Every day they delay could add to their arrears through penalties but this is less of a threat than not acting at all or not getting guidance before making decisions.
“Depending on the situation a business is in, they could approach HMRC to ask for a Time to Pay arrangement (TTP) but it would depend on their previous remittance record and how quickly and honest their communications have been.
“HMRC payment plans aren’t granted automatically and depend on several factors.
“We have a good relationship and record of dealing with HMRC and can negotiate on their behalf but the ultimate decision rests with them and will be influenced by previous interactions. This is why honest and open communications are so important.”
Debt is a natural part of the business cycle and most companies will be debtors and creditors at some stage during the working year - sometimes at the same time.
It only becomes a problem when the debt can’t be serviced when it comes due or business owners have to make a choice on which debt repayments they have to make and which they have to fall behind on or if PAYE repayment is becoming a regular pain.
Some creditors can be negotiated ahead of this and will understand if a payment is going to be late or will make allowances of a missed installment.
Others, such as HMRC, will take a tougher approach and will begin recovery proceedings almost immediately.
If you’re a business owner or director who’s facing these tough decisions then you can help yourself by getting in touch with us as soon as you can.
We offer a free initial consultation with an experienced, expert advisor who has handled hundreds of similar cases in their career and will be able to give you personalised advice once they get a full understanding of your situation.
The earlier you get in touch, the more options you’ll genuinely have to decide on and implement such as an insolvency moratorium or other processes which will halt creditor actions and give your business some valuable breathing space.
But we can’t help at all until you make that all important first call.