PAYE late payment penalties: the frequency ladder
Checked 18 July 2026 · How we check our figures
What it is
PAYE prices lateness differently from every neighbouring regime: the in-year penalty percentage follows how often payments were late in the tax year, not how large or how long, and the first late payment of the year does not count as a default at all (Sch 56 FA 2009, para 6; gov.uk guidance, checked 2026-07-18). Employers meet the result as a PAYE penalty letter. The catch sits at the far end: the separate 5 per cent penalties at 6 and 12 months apply even where only one payment in the tax year is late, so the free first default is only free while it is young.
Reading the notice
The ladder: 1 to 3 defaults in the year, 1 per cent; 4 to 6, 2 per cent; 7 to 9, 3 per cent; 10 or more, 4 per cent, with the first late payment of the year not counted (gov.uk guidance, checked 2026-07-18).
The base it lands on: the amounts paid late across the year, with the earliest late month left out of the count (gov.uk guidance; HMRC manual DMBM523540).
The reach: monthly, quarterly and annual PAYE, student loan deductions, CIS deductions, Class 1, 1A and 1B NICs, HMRC determinations and more besides sit inside the regime (gov.uk guidance).
The decision in front of you
Fix the rhythm before the amount: one late month in a year costs nothing on the in-year ladder, four cost 2 per cent of everything counted, so the pattern is the price.
Ask for Time to Pay before the due date where the month cannot be met: an arrangement made and kept takes the covered amounts out of the penalty count, while interest runs on (gov.uk).
Appeal with a reasonable excuse within 30 days of the penalty notice (gov.uk guidance).
Do nothing and the year does the counting: each further late month climbs the ladder, and the 5 per cent penalties at 6 and 12 months stack on whatever sits unpaid, the free first month included (gov.uk guidance, checked 2026-07-18).
What happens next
The 6 and 12 month penalties: 5 per cent of the unpaid amount at each mark, charged even where only one payment in the tax year is late (gov.uk guidance, checked 2026-07-18).
End of year arrangements have their own peace treaty: adjustments paid under IR35 rules or an Employment Procedures Appendix 6 arrangement carry no late payment penalty while the terms are kept (gov.uk guidance).
Interest builds daily on all unpaid amounts from the due date regardless of any penalty, the hmrc interest guide's territory; the full year's arithmetic runs in the calculator at /fines/paye-late-payment.
The numbers
The in-year ladder: 1, 2, 3 or 4 per cent by the number of defaults, first late payment excluded (gov.uk guidance, checked 2026-07-18).
The long-stop penalties: 5 per cent at 6 months and a further 5 per cent at 12 months on what remains unpaid (gov.uk guidance, checked 2026-07-18).
A year's pattern priced end to end: the calculator at /fines/paye-late-payment.
The deadlines
Monthly PAYE is due by the 22nd of the following tax month electronically, the 19th by post (gov.uk).
The 5 per cent marks fall at 6 and 12 months after a payment's due date (gov.uk guidance).
30 days from the penalty notice to appeal (gov.uk guidance).
What people get wrong
Watching the amount instead of the count: ten small late months price at 4 per cent, one large one at nothing on that ladder, because it counts defaults, not pounds (gov.uk guidance).
Reading the free first default as a free first debt: the 6 and 12 month 5 per cents attach to it like any other unpaid month (gov.uk guidance).
Rolling the arrears into next month's payment quietly: the next month then runs short and late itself, and the default counter moves twice.
Authority
Sch 56 FA 2009, para 6; gov.uk guidance, late payment penalties for PAYE and National Insurance; HMRC manual DMBM523540