HMRC late payment penalties for PAYE: what they cost and how to avoid them

When PAYE is actually due

PAYE and National Insurance deducted from your employees' wages must reach HMRC by the 22nd of the following tax month if you pay electronically, or the 19th if you still pay by post — a distinction confirmed in HMRC's guidance on paying HMRC, and one that trips up more businesses than it should because the date that matters is the date the money clears HMRC's account, not the date you initiate the payment. For a month 1 pay run covering 6 April to 5 May, the electronic deadline is 22 May; miss it by even a day and interest starts accruing immediately, calculated daily on the outstanding balance until the debt is cleared in full. Bank transfers, especially Faster Payments made late on the 22nd itself, can take longer to land than employers expect, particularly around weekends and bank holidays when the deadline effectively falls earlier — build in a buffer of at least two to three working days rather than paying to the deadline date itself.

Late filing penalties (RTI)

Every pay run must be reported to HMRC on or before payday via a Full Payment Submission (FPS), regardless of whether anyone was actually paid that period — an FPS is still required even if the amount is zero because an employee was on unpaid leave. HMRC's guidance on what happens if you don't report payroll information on time confirms that the first late FPS in a tax year is treated leniently and doesn't count as a default, giving every employer one genuine free pass a year. From the second late filing onwards, HMRC applies a monthly penalty automatically, scaled to headcount rather than to how late you were or how much was involved — a business with 60 employees pays £300 for a filing that's one day late just as it would for one that's a month late, because the penalty is charged per tax month containing a default, not per individual submission.

There's also a practical grace period worth knowing about: HMRC's guidance notes that an FPS filed within three days of the payday it relates to is not usually flagged for a penalty, provided this isn't happening regularly. This isn't a formal extension you can rely on, and HMRC can still act if it becomes a pattern, but it does mean a single, genuine one- or two-day slip caused by a payroll processing hiccup is unlikely to trigger a penalty in practice — it's a safety net, not a strategy.

• 1–9 employees — £100 per month
• 10–49 employees — £200 per month
• 50–249 employees — £300 per month
• 250+ employees — £400 per month

Late payment penalties

Paying the PAYE bill itself late is treated differently to filing it late, and the penalties are more severe because they're based on the amount of money involved, not a flat fee. HMRC's guidance on what happens if you don't pay PAYE and National Insurance on time sets out an escalating scale tied to how many times you default within a single tax year: one to three defaults attracts a 1% penalty on the amount paid late, four to six defaults escalates to 2%, seven to nine defaults to 3%, and ten or more defaults to 4% — meaning a business that's chronically late pays four times the penalty rate of one that slips up only once or twice. On top of that percentage penalty, if any amount remains unpaid six months after the due date HMRC charges a further 5% penalty on what's still outstanding, and another 5% if it's still unpaid after twelve months. Interest is charged separately and continuously on every day the underlying tax remains unpaid — it is not a substitute for the penalty, it stacks alongside it.

Worked example: what late PAYE actually costs

Take a business running payroll for 15 employees, with an average monthly PAYE and National Insurance liability of £8,400 (2025/26 figures). In November, a rushed month-end means the FPS for that pay run is filed four days after payday — the second time this has happened in the tax year (the first, back in July, didn't count against them because it was their one free pass). Falling in the 10–49 employee band, that second late filing triggers a monthly penalty of £200. Separately, the same business is 40 days late paying its month 7 PAYE bill — its third late payment default of the tax year, which places it in the 1–3 defaults band and a 1% penalty rate. On the £8,400 owed, that's an £84 late payment penalty, plus interest accruing daily on the outstanding £8,400 for all 40 days it remained unpaid until settled. Add it up: £200 for the late filing default and £84 for the late payment default — £284 in penalties alone, before a penny of interest, for what looked at the time like two minor administrative slips in a single tax month.

Common mistakes that trigger PAYE penalties

Most PAYE penalties HMRC charges are avoidable, and the same handful of process failures show up again and again across businesses that get caught out. None of them involve deliberately dodging tax — they're almost always administrative: a payroll run completed but not submitted, a payment authorised a day later than intended, or a genuine assumption that being a few days late "wouldn't matter." The trouble is that HMRC's penalty system doesn't distinguish between a deliberate default and an honest oversight; the monthly filing penalty and the percentage-based payment penalty apply automatically once the trigger conditions are met, with no manual review before the charge is raised. Understanding where things typically go wrong is the fastest way to stop them happening in yours:

• Treating payday as the FPS deadline rather than the actual cut-off — the FPS must be filed on or before payday, so processing payroll on payday itself leaves zero room for error
• Confusing the PAYE payment deadline (22nd/19th of the following month) with the payroll processing date, and paying HMRC the same day wages go out rather than by the statutory deadline
• Assuming a single missed FPS carries no consequence, without realising it's only the first default in a tax year that's disregarded — the second onwards is penalised automatically
• Paying via a method that takes longer to clear than expected, such as a cheque or a Faster Payment initiated too close to a bank holiday weekend
• Not reconciling what's been reported via FPS against what's actually been paid to HMRC, so a shortfall or duplicate payment goes unnoticed until a penalty notice arrives
• Losing track of how many defaults have occurred in the current tax year, and being caught out by the escalating percentage rate without realising the business had already crossed into a higher band

How to never pay a penalty again

The fixes for avoiding PAYE penalties altogether are unglamorous but complete, and applying all of them consistently is enough to make late filing and late payment penalties disappear from a business's cost base entirely. File the Full Payment Submission with every single pay run without exception, including nil submissions when nobody was paid in a period, so the "first default" allowance HMRC extends each tax year is never used up on something avoidable. Pay electronically, by the 22nd of the month, every month, with a working-day buffer built in rather than paying to the deadline. Reconcile what's been reported against what's actually landed in HMRC's account after every single payment cycle, so a shortfall is caught in days rather than surfacing months later as a penalty notice. This is exactly the discipline a managed payroll service is built to provide — our clients' RTI submissions go in on time, every time, as standard, because the process doesn't depend on any one person remembering to do it.

Already behind? Don't wait for the penalty letters to stack up — HMRC agrees Time to Pay arrangements for viable businesses, spreading the outstanding PAYE bill over a series of manageable monthly instalments and pausing further enforcement action provided you keep to the plan. The earlier this conversation happens, the more flexibility HMRC tends to allow; we negotiate these arrangements on behalf of clients directly with HMRC's debt management teams.

Edge cases worth knowing about

A couple of situations that don't come up in everyday payroll are worth flagging because they catch even well-run businesses out. First, if your business operates more than one PAYE scheme — common in group structures, or where a company runs separate schemes for different divisions or after an acquisition — HMRC tracks late filing and late payment defaults separately against each PAYE reference, not against the business as a whole. That means the "first late filing doesn't count" allowance applies once per scheme rather than once per employer, and a group with three PAYE references effectively gets three free passes a year, one per scheme, with penalties and default counts on each calculated independently. Second, the employee-count band that decides your monthly late filing penalty (£100 to £400) isn't fixed for the year — it's based on the number of employees shown on the FPS for the period in question, so a seasonal business that scales up staff for a busy quarter can tip from one penalty band into the next partway through the year without any change in behaviour, simply because headcount crossed a threshold.

What is the penalty for filing PAYE late?

After your first late Full Payment Submission in a tax year — which HMRC disregards as a one-off — every subsequent late FPS in that year triggers a monthly penalty of £100 to £400, scaled to how many employees you have (£100 for 1–9, £200 for 10–49, £300 for 50–249, £400 for 250+). If the PAYE payment itself is also late, separate percentage-based penalties and daily interest apply on top, so a single bad month can trigger both types of charge at once.

Can PAYE penalties be appealed?

Yes — if you have a reasonable excuse for the lateness, such as an unexpected IT failure, serious illness, or a genuine one-off error outside your control, or if you believe the penalty has simply been calculated wrongly, you can appeal online or by post. We prepare and submit appeals for clients where there are genuine grounds, and can request a review if HMRC's decision looks incorrect.

What if I can't pay my PAYE bill?

Contact HMRC before the deadline passes, or have us do it on your behalf — leaving it until after penalties and interest have already started building only makes the eventual bill larger. Time to Pay arrangements spread the outstanding amount over a series of monthly instalments and pause further enforcement action for as long as you keep to the agreed schedule, and HMRC is generally more willing to agree generous terms the earlier you raise it.