A tax geared penalty structure was introduced by FA 1989, s. 165 which enacted TMA 1970, s. 98A to apply to delays in submitting end-of-year returns and to the submission of incorrect end-of-year returns made fraudulently or negligently. Before these changes, the penalty chargeable was under TMA 1970, s. 98 which imposed an initial penalty followed by a further, continuing penalty in the case of delay and a maximum penalty, which was not tax-geared, in the case of an incorrect return due to the employer’s fraud or neglect.
The provisions of s. 98A charge a penalty for late or incorrect return forms P14, P35, P38 and P38A. The provisions of s. 98 continue to apply to other returns, including forms P11D and P9D.
After the introduction by Finance Act 2007 of a new penalty regime for incorrect returns, TMA 1970, s. 98A(4) applies only to incorrect returns for periods ending on or before 31 March 2008 completed on or before 31 March 2009. For subsequent returns, Finance Act 2007 introduced a unified penalty to apply to incorrect returns for all taxes, including PAYE returns, repealing the provisions of TMA 1970, s. 98A(4).
End-of-Year Returns – Delay
The Taxes Management Act 1970, s. 98A provides that if forms P14, P35, P38 or P38A are submitted late, an automatic non-mitigable penalty is due. The due date for the returns is the 19 May following the end of the tax year to which they relate.
The amount of automatic penalty is £100 for each 50 employees and is chargeable in respect of each month the return is late, up to 12 months. If the delay continues for more than 12 months, the monthly penalty ceases to accrue but an additional penalty is chargeable of up to the full amount of the tax or NIC deductions which have not been paid before 20 May after the end of the year to which the return relates. This is not a fixed penalty and so may be mitigated.
For transitional provisions applying to late returns before 1994–95.
A new unified penalty structure for penalising delays in submitting statutory returns is, at the time of writing, the subject of an HMRC consultation paper. When the new regime is in place, this section will reflect the new provisions. The consultation paper can be read on the HMRC website
End-of-Year Returns – Incorrect
Section 98A(4) (now repealed; see above) also imposes a penalty on an employer who submits incorrect return forms P14, P35, P38 or P38A either fraudulently or negligently. The maximum amount of penalty is the difference between the amount payable for the year of assessment to which the return relates and the amount payable on the basis of the return as submitted. The penalty is not a fixed penalty and so may be mitigated.
The provisions of s. 98A apply only to end-of-year return forms P14, P35, P38 and P38A. Any other returns which are submitted late or which are incorrect due to fraud or neglect, including forms P11D and P9D, are subject to the penalty provisions of s. 98, so that failure to submit a return on time will lay the employer open to an initial penalty charge of £300 and a further penalty of up to £60 per day for each day on which the failure continues after the day on which the initial penalty was imposed.
Where the employer fraudulently or negligently submits an incorrect return, s. 98 imposes a maximum penalty of £3,000.
A new unified penalty structure for penalising delays in submitting statutory returns is, at the time of writing, the subject of an HMRC consultation paper.