Following a review of the effectiveness of a risk-based approach to charging PAYE penalties, HMRC have confirmed that they have decided to continue this approach for the 2018/19 tax year. The effect of this approach is that penalties will continue to be reviewed on a risk-assessed basis, rather than being issued automatically. HMRC will issue the first penalties for the 2018/19 tax year in September 2018.

The risk-based approach will also be adopted to late filing penalties where the FPS is filed after the time at which payment is made to the employee. Where payment is made within three days of this deadline, penalties will not be applied automatically if there is no history of persistent late filing.

It should be noted that the three-day period of grace is not an extension to the FPS filing deadline and should not be relied on. While HMRC will not charge a penalty if an employer occasionally files within this window, employers who make a habit of doing so will not benefit from the concession, and will suffer a late filing penalty. A penalty is not charged on the first occasion in the tax year on which the FPS is filed late.

It should be remembered that the deadline for filing the FPS is the date on which the payment is made to the employee, or the date on which they were entitled to the payment, not the date on which the payroll is run if this is later. Good practice is to run the payroll and submit the FPS and then make the payments to the employees.