Firms may have to pay deposit to prevent defaulting on PAYE

HMRC is concerned that some employers are deducting PAYE and NICs from their employees but not forwarding the money on to the Revenue. In some cases, the employer will use the money to help his cash flow and in others, the firm goes bankrupt with massive debts and although HMRC is a preferential creditor, there is nothing in the pot to pay it with.

To prevent this happening in the future, the Revenue will be allowed to demand an upfront payment from employers it believes are at high-risk of defaulting on their obligations. Failure to pay the security deposit will be a criminal offence and offenders face a fine of £5,000.

The deposit will be held in one of three ways; it could be paid into a, interest bearing bank account that is held jointly between HMRC and the employer, held solely by the Revenue or it could be in the form of a third party bank guarantee where withdrawals are only permitted with the approval of the government department.

In the first instance, the deposit scheme will only apply to PAYE but once those regulations are in place, the procedure will be extended to NICs.

Some accountants Manchester who responded to the government consultation on this issue felt there should be written confirmation that the deposit was requested as a last resort. Adjustments are now to be made to the regulations so that taxpayers have the opportunity to set up a time to pay arrangement before the deposit requirement is enforced.

A similar scheme is already in place for businesses the Revenue considers at high-risk of defaulting on VAT payments.

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