If you file your PAYE returns on time but forget to pay the full amount of PAYE by the due date, Inland Revenue may charge a non-payment penalty as well as late payment penalties and interest.
This non-payment penalty is 10% of the PAYE amount outstanding, and further 10% penalties will be added for each month the amount remains unpaid.
Once the overdue amount is paid (or an instalment agreement is entered into) the last 10% penalty will be reduced to 5%.
Late payment penalties and interest
Penalties are applied to overdue payments as follows:
- Initial 1% penalty may be charged on the day following the due date, then;
- A further 4% penalty may be charged on unpaid tax (and this includes penalties amounts) after the 7th day following the due date, then;
- A 1% penalty may be charged for each month the amount remains unpaid
Interest will also be charged on outstanding amounts, including the value of accruing penalties.
As you can see, penalties and interest charges can snowball quite rapidly if amounts are left unpaid.
Set-and-forget - how to avoid penalties
Many people file their IR345 (employer deductions) and IR348 (employer schedule) at the beginning of each month, then arrange to make payment on the due date. This can increase the risk of forgetting to make payment later in the month when the due date comes around.
One way to combat this is to set up a bill payment through your online banking at the same time you process your PAYE. Internet banking allows you to schedule (future date) bill payments, meaning you can effectively set-and-forget a payment for processing on the due date (just make sure you have enough funds available in your account on the due date to cover the amount being withdrawn).
If you pay your PAYE by cheque, Inland Revenue will generally not present post-dated cheques before the date shown on the cheque. We do recommend highlighting the cheque's date in order to draw attention to this.
If you are having difficulty making tax payments by their due dates and are concerned about accruing penalties, contact us to discuss your options with one of our friendly advisers - we are here to help.