PAYE penalty

I act for a company which fell behind in its payments of PAYE a number of years ago as a result of cash-flow difficulties caused by the recession.

From 1 April 2010 the new PAYE penalties regime came into effect under which the penalty rate is geared to the number of ‘defaults’ made by a taxpayer in the year in question. The regime has a number of curious features.

One is that it penalises the taxpayer who erroneously pays the oldest debt first rather than the liability for the current month.

Another is that the issue of payment allocation becomes crucial. While the penalty is still computed and notified after the end of the tax year the month to which a payment is allocated is used to decide whether a default has occurred and hence the level of penalty chargeable.

The company in question made payments throughout...