An employer that pays PAYE late faces penalties that climb from 1% to 4% of the amount owed, and interest that runs daily at the Bank of England base rate plus four percentage points, a rate that stood at 7.75% from 9 January 2026 [3]. Filing the payroll late is penalised separately, at between £100 and £400 for every month a submission is missed, depending on the size of the workforce [5].
These are two distinct regimes. One punishes paying the tax late, the other punishes reporting it late, and an employer can trip both in the same month. Under Real Time Information, HMRC sees every payrun as it happens, so a missed deadline is visible immediately rather than surfacing at year end.
This guide sets out what HMRC charges when PAYE is not paid or not reported on time, how the penalties escalate, what happens when an employer files or pays nothing at all, and the narrow grounds on which a penalty can be appealed. It is written for employers running their own payroll and for the accountants who manage compliance on their behalf.
Key takeaways
- Late payment and late filing are penalised under two separate systems, and both can apply to the same tax month.
- Late payment penalties escalate from 1% to 4% of the amount paid late, based on how many times an employer defaults in the tax year.
- Amounts still unpaid after six and twelve months attract further 5% penalties, on top of daily interest.
- Late filing of a Full Payment Submission costs between £100 and £400 a month, set by the number of employees in the scheme.
- Where an employer files nothing, HMRC raises an estimated specified charge that can only be displaced by submitting the missing return.
Two separate failures HMRC penalises
The most common misunderstanding about PAYE penalties is treating them as a single charge. HMRC penalises two different things. The first is paying the PAYE bill after the deadline, which is the 22nd of the following tax month for electronic payment and covered in full in the guide to paying PAYE to HMRC [1]. The second is failing to file the payroll information on time through Real Time Information, which requires a Full Payment Submission on or before each pay day [2].
Because the two obligations have different deadlines and different triggers, an employer can be fully paid up but penalised for late filing, or perfectly punctual with submissions but penalised for paying late [5]. Understanding which regime a penalty comes from is the first step to dealing with it, and to preventing it. Reliable UK payroll software files the submission automatically at the point of the payrun, which removes the most common cause of filing penalties [2].
Penalties for paying PAYE late
The late payment regime is built around the idea of a default. A default is a payment that is not made in full by the deadline, and the number of defaults an employer accumulates across the tax year determines how much each one costs.
How the default-based penalty escalates
For monthly and quarterly PAYE, the penalty is a percentage of the amount paid late, and the percentage rises with the number of defaults in the tax year [4]. The first failure to pay on time in a tax year is not counted as a default, so a single slip does not trigger a percentage penalty, though it does still attract interest [4].
The banding works as follows [4].
| Number of defaults in the tax year | Penalty on the amount paid late |
|---|---|
| 1 to 3 defaults | 1% |
| 4 to 6 defaults | 2% |
| 7 to 9 defaults | 3% |
| 10 or more defaults | 4% |
The structure is designed to punish a pattern rather than an isolated lapse, which is why an employer who pays late once is treated very differently from one who pays late every month [2]. Bureaux managing many clients typically use a payroll bureau platform that flags an approaching deadline before a default is recorded [4].
The six and twelve month penalties
The percentage penalties above are not the end of the exposure. If any PAYE amount remains unpaid six months after its due date, HMRC adds a further penalty of 5% of the outstanding tax [4]. A second 5% penalty is charged if the amount is still unpaid after twelve months [4].
These additional penalties can apply even to the first payment of the year that escaped a default penalty, because they are triggered by the length of time an amount stays unpaid rather than by the number of defaults [2]. An employer sitting on an unpaid PAYE balance therefore faces a compounding cost, and the sooner the balance clears the smaller the total charge [4].
Daily interest on top
Interest is charged in addition to any penalty, not instead of it. HMRC applies interest to late PAYE from the day after the due date until the balance is cleared, calculated daily [3]. The rate is the Bank of England base rate plus four percentage points, and it stood at 7.75% from 9 January 2026 [3].
Because interest accrues every day, even a payment that is a week late carries a cost, and it runs regardless of whether a penalty applies [1]. Interest is not a penalty in the technical sense and cannot be appealed on reasonable excuse grounds, which makes prompt payment the only way to avoid it [3].
Penalties for filing payroll late
Separately from payment, HMRC penalises the late submission of Real Time Information returns. Since automatic in-year filing penalties were introduced, a Full Payment Submission sent after pay day without a valid late reporting reason can trigger a monthly charge [5].
The monthly filing penalty by employer size
The filing penalty is fixed by the number of employees in the PAYE scheme, and an employer incurs only one penalty for each tax month per scheme, however many submissions are late in that month [5]. The first late submission in the tax year is not penalised, unless the scheme is registered as an annual one [5].
The monthly amounts are set out below [5].
| Number of employees in the scheme | Monthly filing penalty |
|---|---|
| 1 to 9 | £100 |
| 10 to 49 | £200 |
| 50 to 249 | £300 |
| 250 or more | £400 |
Filing penalties are generally issued automatically and are notified quarterly, so an employer may not learn of a late submission until a penalty notice arrives some weeks later [5]. Software that holds the HMRC Recognised badge submits the Full Payment Submission at the moment of the payrun, keeping the filing within the deadline automatically [2].
The three-day grace period
HMRC operates a concession under which it will not generally charge a filing penalty where all payments are reported on a Full Payment Submission within three days of pay day [5]. This is not a three-day extension to the deadline. It is a tolerance meant to cover employers who normally file on time but occasionally slip [2].
Employers who persistently file within the three days but after pay day are monitored and can still be contacted or considered for a penalty [5]. Treating the grace period as a routine buffer is therefore a mistake, and the safest approach is to file on or before pay day every time [2].
The extra penalty for returns over three months late
Where a required return is more than three months late, HMRC can charge an additional penalty of 5% of the tax and National Insurance that should have been reported on it [5]. This sits on top of the fixed monthly filing penalty, so a long-outstanding submission becomes progressively more expensive [5].
The additional penalty reflects the fact that a missing return leaves HMRC unable to see what an employer actually owes, which is a more serious failure than a submission that is merely a few days late [6]. Businesses embedding payroll into their own systems often rely on an HMRC-recognised payroll API to guarantee that every scheme files on time across the whole client base [2].
What happens when nothing is filed or paid at all
The regimes above assume an employer eventually files and pays. When nothing arrives, HMRC does not simply wait. It estimates the liability and pursues it, and the estimate is often harder to shift than a penalty.
Specified charges and estimated amounts
If an employer has paid staff but not filed a Full Payment Submission, HMRC raises a specified charge, an estimate of what it believes is owed based on the employer's previous payment and filing history [6]. The estimate appears on the employer's PAYE account and becomes collectable in the same way as an actual liability [6].
A specified charge cannot be disputed in the ordinary sense. It is displaced only by filing the missing submission, at which point HMRC replaces the estimate with the correct figure [6]. This is why an employer who has fallen behind should prioritise filing the outstanding returns, because doing so is the only route to correcting an over-estimated charge [2].
Scheme closure and escalation
Where no reports are submitted over a prolonged period, HMRC can escalate. A scheme that goes without any submissions for an extended stretch can be treated as dormant and closed, forcing the employer to re-establish it before payroll can resume [7]. Accountants stepping in to a distressed payroll often use small business payroll tools that reconstruct the filing history and bring the scheme back into compliance [2].
Continued non-payment can also lead HMRC to pursue the debt through its ordinary collection powers, and unpaid PAYE ranks among the liabilities HMRC pursues most actively because much of it is money withheld from employees [6]. Engaging with HMRC before matters reach this stage is materially cheaper than waiting for enforcement [1].
Reasonable excuse and appeals
A penalty can be challenged, but only on narrow grounds. An employer can appeal where HMRC has raised the penalty incorrectly, or where there was a reasonable excuse for the late payment or late filing [2]. The appeal must be made within 30 days of the penalty notice [5].
HMRC takes a strict view of what counts as a reasonable excuse, and routine matters such as pressure of work, a shortage of funds or reliance on a third party are generally not accepted [5]. A genuine excuse usually involves an unexpected event outside the employer's control, and the obligation must be met without unreasonable delay once the excuse ends [2]. For late payment specifically, agreeing a Time to Pay arrangement with HMRC before the deadline can prevent a default from arising in the first place [1].
How to avoid PAYE penalties
Avoiding penalties comes down to two habits: filing on or before every pay day, and paying by the deadline every month. Both are process problems rather than knowledge problems, which is why automation removes most of the risk [2]. A payroll system that files the Full Payment Submission at the point of the payrun keeps filing within the deadline, and a recurring Direct Debit to HMRC removes the timing risk from payment [1].
Where a business genuinely cannot pay on time, contacting HMRC before the due date to arrange Time to Pay is far cheaper than missing the deadline and absorbing penalties and interest [1]. The employers who never see a penalty notice are rarely the ones who understand the rules best; they are the ones who have made the deadline impossible to miss [4].
Conclusion
Penalties for not paying PAYE are two systems working in parallel, one measuring how often an employer pays late and one measuring how often it files late, with interest running underneath both and estimated charges waiting for anyone who files nothing at all. The design rewards consistency and punishes patterns, so the cost of a single slip is small while the cost of habitual lateness compounds quickly.
The practical lesson is that PAYE compliance is a matter of routine rather than expertise. An employer that files on or before pay day and pays by the 22nd will never encounter most of the charges described here, and the tools to make both automatic are now standard. As Real Time Information gives HMRC an immediate view of every payroll, the margin for quietly catching up later has gone, and building the deadlines into the payroll process is the surest protection against the penalties that follow when they are missed.
Frequently asked questions
How much is the penalty for paying PAYE late?
The penalty is a percentage of the amount paid late, rising from 1% to 4% depending on how many times an employer defaults in the tax year, with the first default not counted [4]. Amounts still unpaid after six and twelve months attract further 5% penalties, and daily interest at the base rate plus four percentage points runs throughout [3].
What is the penalty for filing a Full Payment Submission late?
The filing penalty is fixed by the number of employees in the scheme, ranging from £100 a month for one to nine employees to £400 a month for 250 or more [5]. Only one penalty applies per tax month per scheme, and the first late submission of the tax year is not penalised [5].
Does the three-day grace period give employers extra time to file?
No. The three-day grace period is a concession for employers who normally file on time but occasionally slip, not an extension of the deadline, which remains on or before pay day [5]. Employers who routinely file within the three days but after pay day are monitored and can still face a penalty [2].
Can an employer appeal a PAYE penalty?
Yes, but only where HMRC raised the penalty incorrectly or the employer had a reasonable excuse, and the appeal must be made within 30 days of the notice [5]. HMRC applies a strict test, and everyday reasons such as workload or lack of funds are generally not accepted as a reasonable excuse [2].
