February 14, 2012
Employers with a track record of avoiding PAYE and National Insurance (NI) payments will have to make an upfront security payment from April, under a new scheme unveiled by HM Revenue & Customs (HMRC).
Failure to pay the security will lead to a fine of up to £5,000 as the taxman cracks down on employers who deliberately cheat the Revenue, and their staff, out of employee tax payments.
An HMRC spokesman could not name the exact amount of money lost each year by firms avoiding employee-related taxes, but said they expected to target “360-400” businesses in the first year of operating under the new system.
He stressed that the security system was intended to penalise businesses deliberately avoiding tax payments, particularly ‘phoenix companies’ – those that go insolvent to avoid debts, then reappear under a different name. Firms experiencing genuine difficulties making tax payments were not being targeted.
“Although the vast majority of employers pay their taxes as they should, there is a problem,” said the spokesman. “It’s about taking money off employees, saying they are going to pay it over to HMRC and then not doing so.”
Security payments are already used to reduce the impact of firms cheating VAT, insurance premium and environmental tax payments. They require a business or a director to make a cash deposit or hand over a bond from an approved financial institution that is payable on demand. HMRC makes a case-by-case calculation of the amount of the security to be paid, and any fines for non-payment.
Anita Monteith, technical manager for the tax faculty at the Institute of Chartered Accountants for England and Wales, welcomed the new system.
“This is predominantly aimed at people who have a history of ‘phoenixism’,” she said. “HMRC will be targeting people who are known to them and have built up large debts in the past and they’ll ask them for surety. That’s different from a business encountering cashflow problems. HMRC offers a business payment support service for those firms.”
Businesses experiencing difficulties making their PAYE and NI payments should contact HMRC as soon as possible to discuss payment arrangements.