PAYE/Payroll Errors and HMRC: Penalty for Businesses and the Liability of Company Officers

8th February 2021
Glen Henry headshot

Glen Henry

Solicitor Advocate

In Brief

Businesses often endure problems with their payroll and PAYE schemes. Not only is this inconvenient and a cause of many problems for employees, but HMRC can also impose penalties on the business and in certain circumstances on individual company officers themselves. PAYE mistakes are usually made through the EPS (Employer Payment Summary) and/or the FPS (Full Payment Submission). Mistakes can be corrected (if made in 2018/19 or 2019/20 tax years by submitting an EYU (Earlier Year Update). 

The Covid-19 pandemic poses unique difficulties for businesses and the scope for mistakes and unfortunately for fraud to occur is ever more present. HMRC can take a civil or criminal approach depending upon how mistakes and/or errors occurred. This article details a way in which HMRC can impose civil penalties on businesses. We can assist and guide you in how to deal with HMRC in these circumstances. 

Tax forms

Penalties for inaccuracies in returns and documents

HMRC may charge you a penalty if you send a return or other document that contains an inaccuracy, and the inaccuracy: 

• Results in tax being unpaid, understated or over-claimed and 

• Was careless, deliberate or deliberate and concealed

HMRC will not charge you a penalty for an inaccuracy if you took reasonable care to get things right but your return or document was still wrong. We can advise you in some of the ways you can show that you took reasonable care. 

If you tell HMRC about an inaccuracy before you have any reason to believe that HMRC are about to find it then this an ‘unprompted disclosure’. If you tell HMRC about an inaccuracy at any other time, HMRC will call it a ‘prompted disclosure’. This is important as unprompted disclosures attract a lesser penalty. 

HMRC can reduce the amount of any penalty they charge you depending on our view of how much assistance you gave us. HMRC refer to this assistance as the ‘quality of disclosure’. Again, we can advise you on how to assist HMRC in this way and to achieve the best possible reduction.

Level of penalty

The penalty is a percentage of the ‘potential lost revenue’ (from 1% to 100%). This percentage will depend on the type of behaviour HMRC assess to have taken place and whether there was a prompted or unprompted disclosure. HMRC describe 8 stages in working out the amount of any penalty but one of the main factors is how HMRC look at your behaviour. The type of behaviour will affect whether HMRC charge a penalty and the amount of the penalty. There are four different types of behaviour. 

Reasonable care 

HMRC say that “Everyone has a responsibility to take reasonable care over their tax affairs. What ‘reasonable care’ is will depend on each customer’s abilities and circumstances…If you took reasonable care to get things right but your return or document still contained an inaccuracy, we will not charge you a penalty”.  


This is where you failed to take reasonable care to get things right.  


This is where you knew that a return or document was inaccurate when you sent it to HMRC. Examples of deliberate inaccuracies include paying wages without accounting for PAYE and National Insurance contributions.  

Deliberate and concealed inaccuracies 

This is where you knew that a return or document was inaccurate and you took active steps to hide the inaccuracy from HMRC, either before or after you sent it. An example of taking active steps to conceal an inaccuracy is where you create a false invoice to cover a non-existent stock purchase. These circumstances may give rise to a criminal investigation for fraud and such an investigation may also result in personal liability to company officers. We can also expertly advise you in such fraud matters. 

When a company officer may have to pay a company’s penalty for a deliberate inaccuracy 

A company officer may have to pay some or all of the company’s penalty if the penalty is due to their actions, and one or more of the following applies: 

• They have gained, or attempted to gain, personally from a deliberate inaccuracy 

• The company is, or is about to (in HMRC’s opinion) become insolvent, even if the officer did not gain personally from the deliberate inaccuracy

This article provides a brief overview of how HMRC can deal with PAYE errors. We can expertly guide you through the numerous issues involved and work with you and HMRC to achieve the best possible result for you and your business. 

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