From 6 April 2012 HMRC will be able to ask employers to pay a ‘security’ where they judge the employer is in serious risk of non-payment of PAYE tax and/or Class 1 NIC.
The introduction of a security for direct taxes has followed on the back of the effective regime operated for VAT, Insurance premium tax (IPT) and environmental taxes.
The reason for the introduction of a security for PAYE/NIC is that HMRC claim that in over half of all cases in which a security is requested, the trader becomes compliant following receipt of the first warning letter and there are high hopes the same success can be achieved from this initiative.
What is a security?
A security has been defined as either a cash deposit made by the business/ director or a bond from an approved financial institution which will be payable on demand. The cash deposit will be either held by HMRC or paid into a bank account in the joint names of the taxpayer and HMRC.
Will it affect me?
HMRC recognise that the vast majority of employers do comply with their PAYE/NIC obligations. The securities will be targeted at the minority of employers who deliberately attempt to defraud HMRC.
HMRC define these non-compliance employers as those who
- Deliberately choose not to pay
- Engage in phoenixism (the owners deliberately close the old company one day and set up a new company the next day-to evade paying the old business’ creditors)
- Build up large debts of PAYE and NIC including penalties
- Do not co-operate with HMRC
How does it work?
A warning letter will be issued to the employers HMRC believe may run up a large PAYE/NIC debt. The letter will warn the employer that payments are due and that a security maybe required in respect of future liabilities.
The employer then has a 14 day period in which to respond. If the outstanding liability is not settled by the deadline, or HMRC view their response as unacceptable, a security will be requested.
How much security will I be asked to pay?
The amount to be held as security will be calculated by HMRC on a case by case basis and will be dependent upon the amounts of tax perceived to be at risk, the previous behaviour of the employer and other non-specified risks factors.
HMRC have agreed to inform the employer
- How the security amount has been calculated
- Information on what the security can be
- A factsheet which explains the appeals process.
This will be delivered through a ‘notice of requirement’.
It is important to note that employers requested to make a security payment can appeal against HMRC’s decision and that any appeal will be heard by an Independent tribunal.
Are there any sanctions?
If the employer does not comply with the request for security, the appeal is denied or time barred then HMRC do reserve the right to prosecute the employer, although the sanctions with be financial rather than custodial. The fine can be up to £5,000.
What if I cannot pay?
HMRC do stress those employers who have genuine financial problems will receive their support and refers them to the business payment support service.
It is quite clear from the guidance issued and the stance being taken by HMRC that they are specifically targeting those who can pay their liabilities but deliberately choose not to. This is a further example of HMRC’s tough stance on non-compliance.