Talking to your clients – Security for payment of PAYE

Tax is an ever changing world but some changes are more important to clients than others.

Whilst you will be aware of the technical issues it is easy to forget, and find the time, to focus on explaining these to clients. Taking extracts from our Finance Act 2012 course notes, we have prepared a series of tax tips to assist you when 'Talking to your clients' to provide proactive, responsible and timely advice therefore saving you time.

HMRC currently requires some businesses owing or likely to owe taxes and duties to provide security or to ensure payments are met. A facility to require security exists for most of the indirect taxes but it is most commonly used for VAT where the taxpayer has a poor payment record.

The most common form of security is a cash deposit held by HMRC or paid into a joint HMRC/taxpayer interest-bearing banking facility. Taxpayers may make withdrawals from these accounts but only with HMRC approval.

There has been no similar obligation to require a security within PAYE or NIC legislation. The Labour Government intended legislation to enable HMRC to require a security in respect of PAYE. It was to be restricted so that it applied only to cases of serious noncompliance where it was considered that PAYE was seriously at risk. Similar amendments were to be made to NIC regulations to achieve the same effect.

The Coalition Government has now introduced such a power.

HMRC will be able to require a security in respect of PAYE but it will be restricted so that it only applies to cases of serious non-compliance where it is considered that PAYE is seriously at risk. Amendments are made to NIC regulations to achieve the same effect.

The change came into force from the date of Royal Assent (19 July 2011) but regulations ensured that the start date was 6 April 2012.

A person who fails to comply with a requirement in PAYE regulations to give security commits an offence if the failure continues for a specified period. A person guilty of that offence is liable, if convicted, to a fine not exceeding currently £5,000.

The new 160-page HMRC guidance states that security may be appropriate for high risk businesses and employers involved in:

• phoenixism - repeated insolvency and new company creation;

• repeated refusal to pay until HMRC is about to start bankruptcy or liquidation proceedings; and

• suspected tax fraud.

'With or without a link to previous business failures, or current non-compliant businesses an employer with

• 3 or more unpaid monthly remittances; and

• Debts of £10,000 or more

Is suitable for security action.

An end of year return (P35) that is still outstanding after a penalty has been issued on 19 September following the filing date is another factor to take into account.

' HMRC policy is that a warning letter will always be issued in non-compliance cases.

Key point For clients who may be affected by this make sure that they are aware of this.