Potential PAYE dodging employers to pay security deposit

Accountants may want to advise their clients to get their tax and National Insurance payments in order after the news that HMRC has been given new powers to crackdown on companies that do not pass on contributions to the Revenue.

Employers who have deducted income tax from employees through the PAYE system have an obligation to pass the money to HMRC. In the past, employers who have taken the money from an employees’ salary and not passed it on were able to opt for insolvency. Some of them went on to set up a new company very soon afterwards.

However, as from the start of the new tax year on April 6th, HMRC will be allowed to ask for a security payment if they believe an employer is at risk of defaulting on their PAYE obligations. The amount of the ‘deposit’ will vary depending on individual circumstances and the Revenue could demand it in cash or as a financial bond.

Employers will have the right to appeal but if they are unsuccessful, or choose to ignore HMRC’s demand, they will be liable for prosecution and could face a fine of up to £5,000.

The Revenue already uses similar powers successfully for VAT and environmental taxes, although it has said it is uncertain how many employers will be affected by this latest move.

HMRC stressed that the move was designed to stop employers who deliberately intended to default on their payments, not those who have genuine financial difficulties. Any company with a genuine problem should contact the Revenue as soon as possible and explain their predicament.

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