Employer being required to provide security to HMRC

Fri 15 Jul 2016

In D-Media Communications Ltd v HMRC the Tribunal considered the application of the powers in Income Tax (Pay As You Earn) Regulations 2003, Part 4A and Social Security (Contributions) Regulations 2001, Sch 4, Part 3B to require an employer to make a payment of security against their PAYE liabilities.

This is the first appeal to come to the Tribunal in respect of a Notice of Requirement to provide security in respect of PAYE or NICs and it should be noted that the failure to pay the security is a strict criminal offence and whereas the equivalent provision for VAT requires a further act (the making or receiving of taxable supplies), for PAYE it is the mere failure to provide the security required that triggers the offence (it was noted that the only other way of avoiding triggering the criminal offence is to cease trading).

Whilst it was apparent that the taxpayer was a serious serial defaulter, the amount that HMRC was seeking as payment – £147,134.88 – was substantial and well beyond the company’s means. Although the company was unrepresented the judge recognised that setting the level that high was likely to be beyond the company’s means and, because non-payment would result in a criminal offence, considered it appropriate to reduce it to a more reasonable level of £25,000.

It should be noted that security was not only required from D-Media – it was also required, on a joint and several basis, from directors of D-Media. Furthermore, the security was required to be given for a period of 24 months. The Tribunal considered the basis for any reduction due to hardship and considered that as hardship could be the basis for a reduction in the security it could not see any reason why it should not be taken into account in setting the amount required. Indeed, failure to do so would inevitably mean that the taxpayer would be unable to provide the security and would become guilty of a criminal offence.

The fact that HMRC has chosen to use this legislation – with its potential criminal consequences – gives a strong message that needs to be disseminated to employers everywhere.