HMRC: No Mandatory Payrolling Penalties 2027 for Inaccuracies

• HMRC is introducing a new penalty and interest regime for mandatorily payrolled benefits in kind, effective from the 2027-2028 tax year.
• For 2027-2028, penalties for inaccuracies in Real Time Information (RTI) returns will only apply in cases of deliberate non-compliance, though existing late filing and payment penalties remain.
• From the 2028-2029 tax year onwards, penalties and interest will generally apply to errors in mandatorily payrolled benefits and expenses. Most remaining benefits will be included in mandatory payrolling from April 2028.
• Income Tax liabilities must be paid by April 19 (or April 22 electronically) and Class 1A National Insurance contributions by July 22 following the tax year end. For payrolled benefits, these will be collected in real-time through payroll.
• Employers can mitigate penalties by voluntarily disclosing inaccuracies and maintaining thorough records of estimated and actual benefit values.

From the 2028-2029 tax year onwards, a stricter regime will take effect, with penalties and interest becoming applicable for mandatorily payrolled benefits in kind and expenses.

A significant shift in HMRC mandatory payrolling penalties 2027 is on the horizon for employers, particularly concerning benefits in kind reported through Real Time Information (RTI) returns. From 6 April 2027, mandatory payrolling of benefits in kind will begin, with a phased approach for different types of benefits. For the initial 2027-2028 tax year, a degree of leniency will be applied: employers will not face penalties for inaccuracies in their mandatorily payrolled benefits unless there is clear evidence of deliberate non-compliance. This provides a transitional period for businesses to adapt to the new requirements.

However, this initial flexibility does not extend to existing compliance obligations. Standard late filing and late payment penalties will continue to be enforced as before. Furthermore, the penalty framework for P11D and P11D(b) returns remains entirely unchanged where these submissions are still required. The landscape changes significantly from the 2028-2029 tax year onwards, when a stricter regime will take effect, with penalties and interest becoming applicable for mandatorily payrolled benefits in kind and expenses. Most remaining benefits in kind will be included in mandatory payrolling from April 2028.

To navigate these changes, employers must ensure the accurate reporting of benefits in kind from April 2027 to prevent employees from incurring tax underpayments. Adherence to strict payment deadlines is crucial to avoid HMRC payrolling interest charges and penalties. Income Tax liabilities arising from payrolled benefits must be settled by April 19 following the end of the tax year, with an extension to April 22 for electronic payments. For payrolled benefits, Income Tax will be deducted and paid in real-time through PAYE as part of the Full Payment Submission (FPS) each pay period.

For Class 1A National Insurance contributions (NIC) liabilities, employers are granted additional time, with the payment deadline set for July 22 following the tax year end. However, with mandatory payrolling, Class 1A NIC on payrolled benefits will also move to real-time payment through payroll. Penalties will be levied if an employer fails to submit a required return or neglects to correct an inaccurate submission. In such instances, interest will be backdated, commencing from April 22 for Income Tax and July 22 for Class 1A NIC, underscoring the importance of timely and precise Real Time Information penalties 2027 compliance.

Employers have avenues to mitigate potential UK benefits in kind penalties. Penalty rates are generally reduced when inaccuracies are voluntarily disclosed to HMRC before the tax authority identifies them. For minor errors in previous tax years, corrections can typically be made using specific amendment functionality within payroll software, streamlining the rectification process.

Robust record-keeping is paramount for effective employer tax compliance 2027. Employers should maintain detailed records explaining any estimated values reported and the precise date when the correct values became known. For example, if an employer reported an estimated car benefit of £4,000 for Kay in the 2027-2028 tax year but later corrected it to £5,200 on June 30, 2028, this correction would trigger additional Income Tax and Class 1A NIC. While the Class 1A NIC was paid on time (July 20, 2028), the employer was liable for late-payment interest on the Income Tax from April 23, 2028, until June 30, 2028, due to the delay in reporting the additional tax. The imposition of penalties in such scenarios depends on various factors, including the cause of the error, whether the employer exercised reasonable care, and if the error was disclosed before HMRC's intervention.

Compliance officers and legal advisors must inform employers about the new penalty and interest regime for mandatorily payrolled benefits in kind, effective from the 2027-2028 tax year. Particular attention should be paid to ensuring accurate and timely reporting to avoid late payment interest and penalties, especially as the leniency for inaccuracies in the initial year (2027-2028) does not extend to deliberate non-compliance or subsequent tax years.

Source: Original reporting via HMRC guidance