HMRC Given More Power to Target Potential PAYE Absconders

HM Revenue & Customs (HMRC) have been given stronger powers such that, from 6th April 2012, they can ask employers to pay a security deposit where there is a risk that they won't pay over their PAYE or Class 1 National Insurance Contributions (NICs).

HMRC can already ask for a security for VAT, insurance premium tax (IPT) and environmental taxes.

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This tougher stance has been on the horizon for companies for a while now. In the past some employers would delay paying PAYE for months or longer and use the cash as an interest free loan.

The introduction of an interest charge on late payments from April 2010 resulted in a number of penalties being issued earlier this year. However, while these penalties may have acted as a deterrent for some employers, there is undoubtedly a number who would simply have dissolved (liquidated) the company and set up a new business the next day to continue trading (sometimes referred to as phoenix companies).

According to HMRC website, as a result of these 'loopholes', they are now targeting those employers who rack up PAYE creditor and also phoenix companies.

This tougher approach was not expected to start until April 2012. This has not proved to be the case. According to Paul Palmer (Associate in Manchester Office), HMRC have already started to flex their muscles; "HMRC already take this firm approach with phoenix companies and some examples have already been seen in the last 18 months. They seem to be particularly targeting cash businesses. What's more, if the security deposit is not paid as requested, HMRC can shut down the business premises entirely.  So far, 2 bars/restaurants have been subject to this strict enforcement."

This is definitely an issue that must be watched closely by all businesses. Going forward, it will be interesting to see who HMRC continue to target and if they pursue specific industries.

For more information on VAT or PAYE issues, please email or call Ken Davies (Widnes) on tel: 0151 423 7500 or Colin Corder (Liverpool) on tel: 0151 255 2300.

Registered to carry on audit work by the Institute of Chartered Accountants in England and Wales and authorised and regulated to carry on Investment Business by the Financial Services Authority.

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Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business