If you employ staff in the UK, paying PAYE on time is a legal obligation. Miss a deadline, and HMRC records it against your account. While the first late payment in a tax year does not attract a financial penalty, every subsequent default will cost you.
This guide covers every charge you can face for paying PAYE late, how they build up over time, and what to do if you have already missed a deadline.
When Is PAYE Due?
As an employer, you deduct Income Tax and National Insurance Contributions from employees’ wages each pay period and pass them to HMRC. The payment deadline depends on how you pay:
- Electronic payment: 22nd of the month following the end of the tax month
- Cheque or postal payment: 19th of the following month
- Quarterly payers: if your average monthly PAYE bill is under £1,500, you may pay quarterly deadlines fall on 22 July, 22 October, 22 January, and 22 April
Missing any of these dates, even by a single day, starts the clock on HMRC’s penalty system.
How the Default Penalty System Works
HMRC charges late payment penalties on PAYE amounts that are not paid in full and on time. The penalties are set out in Schedule 56 of the Finance Act 2009 and apply by default. Each late payment in a tax year is recorded as a default, and the penalty rate increases the more defaults you accumulate.
The first failure to pay on time does not count as a default. It acts as a warning with no financial charge. Every late payment after that costs you money.
The first late payment in a tax year is recorded as a default but does not attract a financial penalty. From the second default onwards, penalties are charged at a percentage of the late amount, starting at 1% for the second and third defaults in the year.
Additional Surcharges for Debts Left Unpaid
The default percentages above apply per late payment event. But if a PAYE debt is never fully cleared, HMRC adds further surcharges on top.
The 6-month and 12-month surcharges are each calculated at 5% of the outstanding balance and measured from the penalty date, as defined in Schedule 56 of the Finance Act 2009, which, for monthly PAYE, is the day after the original payment due date. If the full amount remains unpaid at 6 months from that date, HMRC charges an additional 5%. A further 5% applies if the debt remains unpaid for 12 months. These surcharges apply even where only one payment in the tax year was late.
A PAYE debt left uncleared for a full year can therefore attract a 10% surcharge on top of any default percentage penalty and all accumulated daily interest.
Late Payment Interest
On top of all penalties, HMRC charges interest on any PAYE not paid by the due date. Interest runs daily from the day after the due date until the full amount is cleared. From 6 April 2025, the rate is set at the Bank of England base rate plus 4%. The current rate is 7.75% per year (from 9 January 2026, as published on gov.uk).
This is more than double the rate that applied in early 2022. On a £10,000 PAYE debt left unpaid for three months, interest alone comes to around £194. Leave it six months, and that roughly doubles, and it builds every single day.
Class 1A & Class 1B NIC Penalties
Class 1A NICs and Class 1B NICs carry separate due dates, and each operates under a different penalty structure from standard monthly PAYE.
Class 1A NICs charged on benefits in kind reported on P11D must reach HMRC by 19 July following the end of the tax year if paying by post or cheque, or by 22 July if paying electronically.Â
Class 1B NICs charged under a PAYE Settlement Agreement must reach HMRC by 19 October following the tax year if paying by post or cheque, or by 22 October if paying electronically.Â
For both Class 1A and Class 1B NICs, the penalty date is the day after the due date, not 30 days after it. If the amount remains unpaid after that point, penalties apply as follows:Â
- 5% of the unpaid amount if not paid within 30 days of the due date
- A further 5% if still unpaid at 6 months from the due date
- A further 5% if still unpaid at 12 months from the due date
All three penalty milestones are measured from the original due date, not from the penalty date.
Late RTI Filing Penalties
PAYE payment penalties and RTI filing penalties are two entirely separate things.
RTI (Real Time Information) requires you to submit a Full Payment Submission to HMRC on or before each payday. If you miss that deadline, HMRC charges a fixed monthly penalty based on the number of employees in your scheme. HMRC does not currently penalise submissions made within 3 days of the payment date, but this is an administrative concession rather than a legal right it is not written into legislation, and HMRC can withdraw it at any time. If you miss that deadline, HMRC charges a fixed monthly penalty based on the number of employees in your scheme:
The first late submission in a tax year is generally not penalised. HMRC also informally allows a three-day grace period for minor delays, though employers who persistently file within this window may still be flagged and monitored.Â
Late RTI filing penalties can be charged even if your PAYE payment reached HMRC on time and vice versa. They are assessed independently.Â
All three penalty milestones are measured from the original due date, not from the penalty date.
Appealing a PAYE Penalty
You can appeal online through HMRC’s PAYE for Employers service. Once logged in, select ‘Appeal a penalty’. You will receive an immediate acknowledgement when the appeal is submitted, and in some cases, HMRC will accept and settle it automatically.
You must appeal within 30 days of receiving the penalty notice. Appeals can also be sent in writing to: DM PAYE Late Payment Penalties, HM Revenue and Customs, BX9 1EW.
HMRC recognises the following as valid grounds for appeal: data on the returns was incorrect, death or bereavement, fire, flood or natural disaster, ill health, an IT difficulty, no employees or no payments made in the period, evidence of having paid on time, theft or crime, or a Time to Pay arrangement being in place.
What HMRC will not accept as a reasonable excuse includes pressure of work, forgetting the deadline, or a lack of funds, unless the insufficiency of funds was directly attributable to events outside the employer’s control. This is set out in Schedule 56 of the Finance Act 2009, which provides that an insufficiency of funds is not a reasonable excuse unless it arises from circumstances the employer could not have prevented.
If HMRC rejects the initial appeal, the employer has two further statutory options. First, they can request an internal review by an independent HMRC officer who was not involved in the original decision. HMRC has 45 days to complete the review. If the employer remains unsatisfied with the outcome, they have 30 days from the date of the review letter to appeal to the First-tier Tribunal (Tax Chamber), which is wholly independent of HMRC. These are statutory rights available to every employee and should not be overlooked.
What to Do If You Cannot Pay on Time
If you know a PAYE payment will be late, contact HMRC as early as possible. Employers who reach out proactively are treated more favourably than those who miss the deadline and say nothing.
HMRC offers Time to Pay arrangements, which let you spread the debt over an agreed schedule. Once in place, payments made under the arrangement are not counted as further defaults — so no additional percentage-based penalties build up. Interest continues to accrue throughout, but the penalty clock stops.
To discuss a Time to Pay arrangement, call HMRC’s Business Payment Support Service on 0300 200 3835.
How to Avoid PAYE Penalties
The simplest way to avoid penalties is to treat the 22nd of each month as a firm deadline, not a rough target. A few practical steps that help:
- Schedule BACS payments at least three working days before the deadline to allow for bank processing time
- Set recurring reminders for every payment date across the tax year
- Use HMRC-recognised payroll software that calculates your liability and flags upcoming deadlines
- Reconcile your payroll figures before the 19th so you know exactly what you owe ahead of time
- If your monthly PAYE bill consistently stays below £1,500, check whether a quarterly payment suits your cash flow better
- Setting up a Direct Debit with HMRC for PAYE payments ensures payments reach HMRC on time and removes the risk of manual error.
- Employers should also regularly check their HMRC online PAYE account to confirm payments are being correctly allocated, as misallocated payments can trigger penalties even where the employer has paid the correct amount on time.
Conclusion
PAYE penalties are designed to escalate. A single missed payment in a tax year costs nothing in percentage terms, but a pattern of late payments across the year can quickly push you into the 2%, 3%, or 4% penalty bands, on top of daily interest running at 7.75% per year.
The surcharges for debts left uncleared are where things get particularly costly. A 10% surcharge on an unpaid balance, stacked on top of existing penalties and interest, can significantly damage your cash flow, especially if the original amount owed was already substantial.
The best position to be in is one where none of this applies to you. Good payroll software, a clear payment schedule, and knowing your deadlines go a long way. But if you have already missed a payment, acting quickly matters. Contact HMRC before they contact you, look at a Time to Pay arrangement if funds are tight, and appeal any penalty promptly if you have genuine grounds to do so.
The rules are strict but also transparent. Knowing them puts you in a far better position than finding out after the fact.
