PAYE

From April 2012, HMRC can require employers to pay a security, where there is serious risk that they won’t pay over their PAYE tax deductions or NICs.

The new power will be targeted at employers who deduct money from employees’ pay packets, under the pretext of paying their employees’ income tax and NICs, but have no intention of paying it to HMRC. These employers often build up substantial PAYE and NICs debts, and ignore HMRC’s attempts to contact them. In many cases, the business becomes insolvent, to avoid tax, and sets up a new company soon after, to continue trading (known as a “phoenix company”).

This is an extension of a power that has already been successfully used for VAT, insurance premium tax and environmental taxes, and 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.

More information on the new measure is available from HMRC.