HMRC publish guidance on RTI penalties
HMRC has recently published guidance on penalties for late and inaccurate returns submitted in real time (RTI).
Employers will be required to report PAYE information in real time from April 2013. Each time they pay an employee they must submit a Full Payment Submission (FPS).
Late returns 2012/13 & 2013/14
There is to be no change to the penalties for late filing of returns for the tax years ending 5th April 2013 and 2014. The current penalty regime will continue to apply at the tax year end. Where, therefore, in-year FPS's are submitted late, no penalty will be charged.
If, however, employers still have information to send after the year-end and this is reported later than 19th May following 5th April, then a penalty will arise.
The final FPS can be submitted by 19th April but after that date an Earlier Year Update (EYU) must be filed by 19th May to avoid a penalty.
From October 2013, HMRC will issue letters to employers so that they understand that they would have been liable to a penalty.
Where no payments are made to employees in a tax month and therefore there is no FPS to send to HMRC, employers must file an Employer Payment Summary (EPS) by the 19th of the following tax month. This will help HMRC avoid incorrectly issuing a penalty notice because they were expecting an FPS. Failure to send an EPS to HMRC by 19th May will also attract a penalty.
Penalties are calculated on the basis of £100 per 50 employees and continue to accrue for each month (or part month) that a return remains outstanding after 19th May.
Automatic penalties are to apply from April 2014, details of which are to be released in due course.
Inaccurate returns 2012/13 & 2013/14
For the year ending 5th April 2013, no penalties will be charge for inaccurate in-year FPS's. Penalties may however be charged at the end of the tax year based on the final FPS for the year.
The position changes from 6th April 2013, when penalties for inaccuracies may apply to in-year returns.
HMRC calculate penalties as a percentage of the additional tax due. This is calculated when the inaccuracy is corrected. The additional tax due is called the potential lost revenue.
The penalty rates for inaccuracies can be:
- up to 30% of the potential lost revenue if the inaccuracy is careless;
- up to 70% of the potential lost revenue if the inaccuracy is deliberate;
- up to 100% of the potential lost revenue if the inaccuracy is deliberate and the person attempts to conceal it.
There is no penalty if a person can demonstrate they have taken reasonable care to get their tax right, but despite this, submit an incorrect return.
Suzanne Newton, HMRC's Programme Director for RTI, said:

“After stakeholder consultation, we have published our guidance on late and inaccurate returns sent in real time. This will give most employers a year to get used to reporting in real time before implementing the new penalties.”
The decision to apply penalties for in-year errors in the first full year of RTI, ie 2013/14, has attracted criticism from both the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England & Wales. Employers will still be on a learning curve and the threat of a penalty for making errors in their returns does seem unfair. The CIOT said, “HMRC have still not provided a satisfactorily clear reasoning to justify starting in-year penalties from day one.”
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