RTI Penalties Announced

Draft Finance Bill 2013 clauses set out new RTI and PAYE late payment filing penalties that won’t come into effect until April 2014

But penalties for filing accuracy will come into force as soon as the Finance Bill receives Royal Assent.

Earlier this month, tax professionals were dismayed at the government’s determination to levy such penalties and concerned that they would have a significant impact upon small businesses.

The Finance Bill amendments may appear to give more leeway to those who take time getting used to the new PAYE filing system.

A relaxation of some of the penalties is really welcome, but the penalties for incorrect returns, which will come into force straight away, don't give small businesses the time they need to adjust to the system.

We believe that the package overall will afford businesses time to come to terms with the system in the first year and identify problems with HMRC

The government said the legislation will encourage compliance with RTI and ensure that non-compliant businesses don't benefit.

There will of course be new late filing penalties for RTI returns including changes to current late payment penalties to ensure they can be charged in-year. The size of the late filing penalties will be based on the size of the PAYE scheme, rather than filing defaults and will include one un-penalised default, whereby the first filing default every 12 months will not attract a penalty.

For penalties relating to inaccuracies, the law is to be amended to allow a tax year to be treated as a tax period under Schedule 24 to Finance Act 2007. For its part HMRC argued the change would reduce the number of separate penalty assessments issued when errors are found.

Other changes to the penalties and late filing regime include: 

• one penalty per month, even if the employer defaults more than once
• charging penalties quarterly (to get money in more quickly)
• considering an easement for new employers who find filing their first returns difficult due to delays registering with HMRC (they procrastinate so why should businesses pay?)
• legislating for an additional tax-geared penalty to apply for returns outstanding more than three months
• considering an assessing tolerance where a small difference in amounts paid for a tax period compared to amount due to be paid as reported on RTI returns will not trigger a payment default (small difference not defined)
• applying interest to late RTI penalties.

According to the documentation, work on secondary law for the new late filing penalties is continuing and will be published for consultation next year.