New tax powers to tackle employer tax cheats

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NEW powers to tackle employers who try to dodge paying their employees’ PAYE (Pay As You Earn) tax or National Insurance contributions (NICs) come into effect this spring.

From April, HM Revenue and Customs (HMRC) can demand employers pay a security where there is a serious risk that they avoid paying PAYE deductions or NICs.

The new power will target employers who deduct money from employees’ pay packets, under the pretext of paying their employees’ PAYE and NICs, but have no intention of paying it to HMRC. These employers often build up substantial PAYE and NICs debts and ignore HMRC’s attempts to contact them.

In many cases the business becomes insolvent, to avoid tax, and sets up a new company soon after, to continue trading, known as a ‘phoenix company’.

HMRC can now extend the power which has already been successfully used for VAT, insurance premium tax and environmental taxes.

This will not affect employers who have genuine payment difficulties.

The required security will usually be either a cash deposit from the business or director or a bond from an approved financial institution, payable on demand.

HMRC will calculate the amount of the security on a case-by-case basis, depending on the amount of tax at risk, the employer’s previous behaviour and other risks.

Businesses which fail to provide a security face a fine of up to £5,000 which will be enforceable by the courts.

More information on the new measure can be found at www.hmrc.gov.uk/thelibrary/tax-paye/paye-securities.htm

Employers who have genuine problems paying their PAYE and NICs should visit www.hmrc.gov.uk/payinghmrc/problems/cantpay.htm for more details.