Understanding HMRC’s RTI Late Filing Penalties and the Return of Direct Recovery of Debts

Managing payroll accurately and on time is more important than ever. HMRC has not only maintained its strict stance on Real Time Information (RTI) late filing penalties, but as of September 2025, it has also reintroduced Direct Recovery of Debts (DRD), a powerful tool to recover unpaid tax directly from bank accounts.

RTI Late Filing Penalties 

Under RTI, employers must submit payroll data to HMRC on or before the date employees are paid. Failure to do so can result in monthly penalties, calculated based on the number of employees:

Number of Employees	Monthly Penalty
1 to 9	£100
10 to 49	£200
50 to 249	£300
250 or more	£400

 

Key points to note:

• First default in a tax year is not penalised, unless you’re registered as an annual PAYE scheme.
• New employers have a 30-day grace period to file their first submission.
• Penalties are issued quarterly, and only one penalty per tax month per PAYE scheme applies.
• Additional penalties may apply if the failure continues beyond three months.

DRD Returns – A Tougher Stance on Unpaid Tax 

In September 2025, HMRC resumed the use of Direct Recovery of Debts (DRD), which had been paused during the pandemic. This measure allows HMRC to recover unpaid tax directly from bank accounts, including cash ISAs, where debts exceed £1,000 and the taxpayer has ignored repeated contact attempts.

How DRD works:

• Personally identify the taxpayer and confirm it is their debt.
• A Time to Pay arrangement may be offered.
• HMRC will leave at least £5,000 in the debtor’s accounts to protect essential expenses.
• Taxpayers have a 30-day window to appeal before any funds are transferred.

This reintroduction reflects HMRC’s renewed commitment to tackling unpaid tax, especially from those who have the means to pay but choose not to.

How Our Payroll Team Can Help 

As an experienced payroll team, we understand the complexities of RTI compliance and the risks of falling behind. Here’s how we support our clients:

• Timely and accurate RTI submissions to avoid penalties.
• Monitoring and reminders to ensure deadlines are met.
• Support with HMRC correspondence, including appeals.
• Proactive guidance to help you stay compliant and avoid enforcement action like DRD.

Final Thoughts

With HMRC stepping up enforcement through both RTI penalties and DRD, it’s vital for employers to stay on top of their payroll obligations.  If you’re unsure about your compliance status or have received an RTI or late PAYE notice from HMRC, don’t delay, contact our team for expert support and peace of mind.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.