A late Full Payment Submission can bring a fixed monthly penalty of £100 to £400 depending on how many employees you have, but the first late month in each tax year is free and HMRC does not normally penalise reports that are no more than three days late. Late PAYE payments attract a percentage penalty of 1% to 4% of the amount paid late, rising with the number of defaults in the tax year, plus extra 5% penalties on amounts still unpaid after six and 12 months.

What is the legal basis for in year PAYE penalties?

Late filing penalties come from Schedule 55 to the Finance Act 2009. Paragraph 6C makes an employer liable to one penalty for each tax month in which it fails to make a real time return on time, and regulation 67I of the Income Tax (Pay As You Earn) Regulations 2003 sets the amount by reference to the number of employees. Paragraph 6D adds a further penalty for extended failures. Late payment penalties come from Schedule 56 to the Finance Act 2009, paragraphs 5 to 8. The filing date for an FPS is the payday itself: regulation 67B requires the return on or before making the payment. The mechanics of the FPS are explained in Real Time Information: FPS and EPS explained.

When is a late FPS penalised?

You can be penalised if an FPS is late, if you send fewer FPSs than HMRC expects, or if you do not send an EPS for a month in which you paid nobody. HMRC will not charge a late filing penalty where:

  • the FPS is late but every payment on it is within three days of payday, although employers who regularly file in that window may still be contacted or penalised;
  • you are a new employer and sent your first FPS within 30 days of first paying an employee;
  • it is your first failure in the tax year, which paragraph 6C(4) builds into the law (this concession does not apply to annual schemes).

Paragraph 6C(6) limits you to one penalty per tax month, however many FPSs were late in that month.

How much is the late filing penalty?

Number of employees Penalty per tax month
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 or more £400

The band depends on the number of persons employed in the period the return relates to (regulation 67I). If you run more than one PAYE scheme, each scheme can be penalised separately.

If a return is still outstanding three months after the filing date, paragraph 6D lets HMRC charge an additional penalty of 5% of the tax and contributions that should have been shown on it. HMRC may also raise a specified charge, an estimate based on your payment and filing history. The specified charge stays in place until you send the missing FPS or EPS for each month; correcting the year to date figures in a later FPS does not remove it.

How are late payment penalties calculated?

PAYE, Class 1 National Insurance, student loan deductions and Construction Industry Scheme deductions are due by the 22nd after the end of the tax month (the 19th if paying by post). A default happens each time a payment is not made in full by the due date. The first failure in a tax year does not count as a default (Schedule 56, paragraph 6(3)). After that:

Defaults in the tax year Penalty on the amount paid late
1 to 3 1%
4 to 6 2%
7 to 9 3%
10 or more 4%

Paying less than is due also counts. If a monthly or quarterly amount is still unpaid six months after the penalty date, a further 5% of the unpaid amount is charged, and another 5% after 12 months. These apply even if only one payment in the year was late. Daily interest runs separately on everything paid late; see HMRC late payment interest.

For annual amounts such as Class 1A and Class 1B National Insurance, and for HMRC determinations, the penalty date is 30 days after the due date, with 5% penalties at 30 days, six months and 12 months.

How does this work in practice?

Illustration only. An employer with 14 employees pays its PAYE bill late in May, August and November, owing £5,000 each time, and sends its October FPS a week late.

  • May: first failure in the tax year, not a default, so no penalty.
  • August: first default, 1% of £5,000, a penalty of £50.
  • November: second default, another 1%, £50.
  • October FPS: if this is the first late filing month of the year, no penalty. If it is the second, the penalty is £200 because the employer has 10 to 49 employees.

Interest is charged on each late payment in addition.

When will HMRC charge, and what can reduce the penalty?

HMRC issues penalty notices quarterly. You have 30 days from the date on the notice to pay or appeal, and no interest is charged if you pay within 30 days. Before that, HMRC sends online penalty warning messages through PAYE Online when it thinks an FPS is late, missing or a payment is short. Treat those messages as an early chance to fix the record.

Two statutory routes can reduce or remove a penalty:

  • Time to pay. Under Schedule 56, paragraph 10, if you ask HMRC to defer payment and it agrees, no late payment penalty arises during the deferral, provided you keep to the agreement. Ask before the penalty date; see HMRC Time to Pay arrangements.
  • Special reduction. HMRC can reduce a penalty because of special circumstances, but these do not include ability to pay (Schedule 55, paragraph 16; Schedule 56, paragraph 9).

How do you appeal?

You can appeal if the penalty is not due, the amount is wrong, or you had a reasonable excuse. The quickest route is HMRC’s PAYE for employers service: sign in and select Appeal a penalty. You get an immediate acknowledgement but cannot print the appeal, so take a screen print. You can also write: late filing appeals go to National Insurance Contributions and Employers Office, HM Revenue and Customs, BX9 1BX, and late payment appeals to DM PAYE Late Payment Penalties, HM Revenue and Customs, BX9 1EW. Quote the unique ID shown for each penalty on the notice.

The online grounds for late filing include incorrect data, bereavement, an incorrect filing expectation, filed on time, fire or flood, ill health, IT difficulty, a missed correction or easement, no longer having employees, no payments to employees and theft. For late payment they include paid on time and a Time to Pay arrangement in place. Sending the missing FPS or EPS supports a late filing appeal.

Reasonable excuse is defined in Schedule 55, paragraph 23 and Schedule 56, paragraph 16. Lack of funds is not an excuse unless caused by events outside your control, and relying on a payroll bureau or accountant is not an excuse unless you took reasonable care to avoid the failure. See what counts as a reasonable excuse. If HMRC rejects the appeal, it is treated like an appeal against an assessment, so you can ask for a statutory review or go to the First tier Tribunal; see HMRC statutory review and the tax tribunal.

What mistakes lead to avoidable penalties?

  • Not sending a nil EPS when nobody is paid, so HMRC expects an FPS that never arrives.
  • Paying less often than before without telling the employer helpline, which triggers non filing notices.
  • Offsetting statutory pay or other amounts against the payment without an EPS, so the payment looks short.
  • Entering the wrong payment date, which makes an on time FPS look late.
  • Ignoring a specified charge instead of filing the missing return that replaces it.

Inaccurate returns are a separate regime: a careless or deliberate error carries a penalty based on behaviour and potential lost revenue, while errors made despite reasonable care attract none.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.