Tue, 7 Feb 2012

HMRC gains power to demand cash securities from firms it thinks will dodge paying PAYE or NICs

From April HMRC can require employers to pay a cash bond if it thinks they will not pay their PAYE or NICs tax deductions.

The new powers will be targeted at employers that deduct money from workers’ pay packets, under the pretext of paying their employees’ income tax and NICs, but have no intention of paying it to HMRC.

HMRC says these employers often build up substantial PAYE and NICs debts and ignore attempts to contact them.

In many cases the Revenue says the business goes on to become insolvent – in part to avoid paying tax – and sets up a new company soon after to continue trading. This is known as a ‘phoenix company’ because it rises from the ashes of the former firm.

Taxpayer benefit

Norman Green, legislation and compliance manager, Logica UK, said: “There is value in this security as overall there will be less taxes written off through poor financial management of organisations and therefore that means all individual taxpayers and companies will be better off as a result.”

The power is an extension of those in force for VAT, insurance premium tax and environmental taxes, and HMRC says will not affect employers who have genuine payment difficulties.

The required security will usually be either a cash deposit from the business or director, or a bond from an approved financial institution that is payable on demand.

HMRC will calculate the amount of the security on a case-by-case basis, depending on the amount of tax at risk, the employer’s previous behaviour and other risks.

Businesses that fail to provide a security face a fine of up to £5,000, which will be enforceable by the courts.

See also:

• HMRC reviews unfair practice of letting P35 late penalties build up before issuing them
• Self-assessment deadline extended by two days
• Smartphones now considered mobile phones by HMRC but further clarity needed