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Powers to prevent deliberate non-payment of PAYE

From 6 April 2012 HM Revenue & Customs (HMRC) will be able to ask employers to pay a security where there is serious risk that they won’t pay over their PAYE tax deductions or Class 1 National Insurance contributions (NICs).

This will not affect the vast majority of employers who pay their tax on time and in full. And it won’t be used for employers who are having genuine problems.

Why HMRC has been given this new power

Businesses have repeatedly told HMRC that they resent the unfair advantage gained by those who don’t meet their tax obligations. HMRC is determined to pursue those who won’t pay, to make tax fairer for all.

HMRC can already ask for a security for VAT, insurance premium tax (IPT) and environmental taxes. They are effective – in around half the cases the trader becomes and remains compliant after receiving the first warning letter.

What is a ‘security’?

The required security will usually be either a cash deposit from the business or director – held by HMRC or paid into a joint HMRC/taxpayer bank account – or a bond from an approved financial institution which is payable on demand.

How the powers will be used

HMRC will use securities to tackle the handful of employers who deliberately try to defraud the government. These employers:

  • deliberately choose not to pay
  • engage in phoenixism – this is where a business evades tax by becoming insolvent and then sets up a new company the next day to continue trading
  • have no qualms about building up large PAYE or NICs debts, including penalties
  • do not respond to HMRC’s attempts to contact them

These employers will have deducted this money from employees’ pay packets under the pretext of paying their employees’ income tax and NICs. It is not their money to use.

HMRC will calculate the amount of the security on a case by case basis – depending on the amount of tax at risk, the previous behaviour of the employer and other risks. Those being required to pay a security can appeal against this decision.

As with VAT, if an employer fails to provide the security for PAYE or NICs, HMRC can prosecute them. The sanction is a fine, not a custodial sentence.

Employers with genuine financial difficulties

If you are having financial difficulties you should read our guide ‘Problems paying HMRC’ which advises the actions you need to take and provides contact details for the HMRC Business Payment Support Service, who may be able to help you. Problems paying HMRC