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RTI penalties and period of grace

Under real time information (RTI), employers are required to report pay and deductions information to HMRC ‘at or before’ the time that the payment is made to the employee. This is done by means of the full payment submission (FPS). 

Penalties are charged if the FPS is filed late or if HMRC did not receive the expected number of FPSs or an Employer Payment Summary in a tax month in which no payments were made to employees. However, a penalty is not charged for the first default in the year.

Period of grace

HMRC operates a risk-based approach to penalties and historically have allowed a three-day period of grace, not charging a penalty if the FPS is received within three days of the date on which the payment was made to the employee. They are continuing this approach for the 2021/22 tax year and will not charge a penalty where the FPS is received in this three-day window as long as there is no pattern of persistent late filing by the employer. 

However, it should be noted that this is a concession, not an extension to the filing deadline. Employers should treat the concession as an occasional ‘get out of jail free card’ and continue to file the FPS at or before the time that they make the payment, unless one of the limited circumstances in which the FPS can be filed after the payday applies. These are listed in the ‘Running payroll’ guidance on the Gov.uk website.

HMRC will monitor employers who persistently file after the statutory deadline and may be contacted or considered for a penalty as part of HMRC’s risk-based approach.

Amount of the penalty

Where a penalty is charged for late filing, the amount of the penalty depends on the number of employees that the employer has. 

Number of employeesMonthly penalty
1 to 9£100
10 to 49£200
50 to 249£300
250 or more£400

If an employer has more than one PAYE scheme, penalties are assessed and charged separately for each scheme.

Where penalties arise, these are charged in-year on a quarterly basis.

Please get in touch here, if you have any questions.

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Collection of tax debts post Covid-19

During the Covid-19 pandemic, HMRC paused much of their tax collection work, both to allow resources to be diverted to other activities, such as administering the various coronavirus support initiatives, such as the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme, and to provide those whose finances were adversely affected by the pandemic with a bit of breathing space.

However, as the country starts to emerge from the pandemic HMRC have once again turned their focus to the collection of tax debts, publishing a policy paper setting out their approach.

Contact from HMRC

HMRC will generally contact taxpayers who have unpaid tax bills and who have not come to an agreement with HMRC regarding the payment of those bills. The contact may be by post, by phone or by text. Anyone who receives contact that purports to be from HMRC should check that the contact is genuine – HMRC has published guidance on the Gov.uk website containing tips to spot approaches that may be fraudulent.

Any contact from HMRC should not be ignored – HMRC will deal with taxpayers who work with them more favourably than those who resist attempts to get in touch. Those that do resist may be visited by an HMRC officer. 

Ideally, taxpayers who are struggling to pay should contact HMRC to broker an agreement rather than waiting for HMRC to contact them.

Pay if you can

The briefing makes it clear that HMRC expect those taxpayers who are behind with their tax bills to pay the tax that they owe if they can.

Being able to pay may involve taking advantage of the financial support packages available and taking out a loan, such as one under the Recovery Loan Scheme, to provide the necessary funds to clear the tax debt. 

If a taxpayer needs time to arrange a loan, HMRC may agree to defer the debt for a short period of time until the finance is agreed.

Set up a time-to-pay arrangement

If the taxpayer is unable to pay the outstanding tax in full, they may be able to agree a time-to-pay arrangement with HMRC allowing payment to be made in instalments. 

If the client has already been approached by HMRC, they should contact the tax office that sent the communication to discuss setting up a time-to-pay arrangement. Otherwise, they can contact HMRC’s Payment Support Service (0300 200 3825). When making the call, the taxpayer should have their unique taxpayer reference and bank details to hand.

HMRC will want to know the amount of the bill that they are struggling to pay and why they are having problems paying it. They will also want to know what the client has done to try and get the money together. They will also take into account how much the client can pay immediately, and how long they may need to pay the outstanding balance.

Once a time-to-pay arrangement has been agreed, it is important that payments are made on time in accordance with the arrangement. Failure to do so may trigger enforcement action.

Enforcement action

If the taxpayer fails to communicate with HMRC or stick to the terms of an arrangement, from September 2021, HMRC may also take enforcement action to recover the debt. They have a range of powers available, including taking control of goods, summary warrants and court action (including insolvency proceedings). 

While HMRC will endeavour to support viable businesses, if they judge that a business has little chance of recovery, they will act to seek to recover any tax that may be due.

Please get in touch here, if you have any questions.

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Pension annual allowance

Tax relief is available to encourage individuals to make contributions to registered private pension plans. However, while there is no limit to the amount that an individual can contribute to their pension plans, there are limits on the contributions that qualify for tax relief. One of those limits is the annual allowance.

Tax relieved contributions for a tax year cannot exceed the higher of 100% of earnings or £3,600, and must be covered by the available annual allowance.

Nature of the annual allowance

The annual allowance limits the amount that an individual can make in tax-relieved pension contributions across all their registered pension schemes. The basic annual allowance is set at £40,000 for 2021/22. However, an individual’s annual allowance may be less than this if they are a high earner or if they have already flexibly accessed their pension.

If an individual has not used up their annual allowance in the previous three years, they may be able to make tax relieved contributions of more than £40,000 in 2021/22. However, where earnings are less than the available annual allowance, tax-relieved contributions are capped at earnings (or £3,600 where this is amount is more than earnings).

Only one annual allowance is available regardless of the number of registered private pensions that an individual has. The annual allowance applies to total contributions made to a defined contribution scheme in the tax year and any increase in the value of a defined benefit scheme in the tax year. Pension contributions made by an employer to a private pension scheme count towards the annual allowance.

High earners

The amount of the annual allowance is reduced where, for the tax year in question, a person has both adjusted net income of more than £240,000 and threshold income of more than £200,000. Broadly, adjusted net income is income including pension contributions and threshold income is income excluding pension contributions.

Where both tests are met, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £240,000 until the minimum amount of the annual allowance is reached. For 2021/22, this is set at £4,000. No reduction is made to the annual allowance if the threshold income is £200,000 or less, regardless of the level of adjusted net income.

Consequently, anyone with adjusted net income of £312,000 and threshold income of more than £200,000 will have an annual allowance of £4,000 for 2021/22. 

Money purchase annual allowance

A lower annual allowance, the money purchase annual allowance (MPAA), also applies if a person has flexibly accessed their pension on reaching age 55 or above. This is to prevent recycling of contributions to secure further tax relief. 

For 2021/22, the MPAA is set at £4,000.

Unused annual allowances 

If a person has not used their annual allowance in full for a year, the unused amount can be carried forward for up to three years. However, unused allowance for earlier years can only be used once the allowance for the current year has been used in full. Unused allowances from an earlier year are used before those of a later year. 

Contributions in excess of the annual allowance

If tax-relieved contributions are made in a tax year in excess of the available annual allowance for that year, a tax charge applies to claw back the tax relief to which the individual was not entitled.

Please get in touch here, if you have any questions.