More than £300m is reported to have been set aside for the European Commission fine, more than twice the orginial penalty estimate.
The failure to pay-out subsidies was blamed on computer problems at the Rural Payments Agency, which resulted in thousands of farmers facing long delays before getting paid.
Last month, the former boss of the Rural Payments Agency, Johnston McNeill, apologised "unreservedly" for its failure to pay out EU subsidies on time.
He told MPs during a special secret committee session that the scale of the IT problems only became apparent at a very late stage.
The money, around £1.5bn under the EU's single farm payment scheme, should have been paid out by February last year, but that deadline was missed - slipping back to June - and more than 500 farmers were still owed money at the end of 2006.
In December, Environment Minister Lord Rooker told the Lords a further 1,254 had received only an 80% part-payment.
Farming leaders hit out at both Defra and the RPA describing both as "incompetent".