Last updated: 16 October 2026
The question
HMRC has charged my company a large penalty for paying PAYE late, but I thought I always paid on time. What’s going on?
How PAYE late payment penalties work
HMRC charges automatic penalties when PAYE, National Insurance, student loan deductions and CIS deductions are paid late or in part. “Late” means the payment reached HMRC after the due date, which is the 22nd of the month after the pay period for electronic payments, or the 19th if you pay by post. A payment that clears a day late counts as a default, even if you sent it on time from your end.
Penalty rates
The penalty depends on how many times you pay late in the tax year. The first late payment in a tax year does not count.
| Number of defaults in the tax year | Penalty |
| 1 to 3 | 1% of the amounts paid late in the year |
| 4 to 6 | 2% |
| 7 to 9 | 3% |
| 10 or more | 4% |
On top of that, if a payment is still unpaid after six months, a further 5% penalty applies, and another 5% after 12 months. Interest is also charged at 7.75% a year.
Why you may have been penalised
- A bank holiday or weekend pushed the cleared payment past the 22nd.
- You paid the right month but HMRC allocated it to the wrong period because the reference was wrong.
- The amount paid did not match the FPS, for example after a late payroll correction.
- A payroll error created a phantom liability, such as a duplicate employment.
Worked example
A company with monthly PAYE of £5,000 pays late in May, June, September and December. The first late payment does not count, so there are three defaults. The penalty is 1% of the £15,000 paid late in those three months, which is £150.
How to appeal
You can appeal within 30 days of the penalty notice. Reasonable excuses include serious illness, a failure of HMRC’s systems or unforeseeable events. Shortage of money is rarely accepted. If the penalty arose from HMRC allocating a payment to the wrong month, ask HMRC to reallocate it.
Late filing penalties
Separate penalties apply if Full Payment Submissions are filed late. These range from £100 to £400 a month depending on the number of employees, though the first failure each tax year is not penalised.
How to avoid PAYE penalties
- Pay by Direct Debit or set up a payment a few days before the 22nd.
2. Use the correct 17-character reference, including the year and month.
3. Reconcile your HMRC account with payroll monthly.
4. Consider quarterly payments if your average monthly liability is under £1,500.
Frequently asked questions
Does a Time to Pay arrangement stop penalties?
If agreed before the due date, HMRC does not usually charge late payment penalties on the amounts covered.
Are PAYE penalties deductible for corporation tax?
No. Penalties are never deductible.
Can HMRC charge a penalty for one late payment?
Not for the first late payment in a tax year, unless it is still unpaid after six months.
How will I know about the penalty?
HMRC sends a penalty notice and shows it in your business tax account.
Related: missed PAYE payment deadline, quarterly PAYE payments and payroll hygiene.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with PAYE payments and penalty appeals. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
