HMRC take a stronger stance on PAYE default

Fri 01 Jul 2016

An important Tax Tribunal decision with wide (and potentially criminal) implications was reported on 17 June 2016. The appeal concerned the requirement for an employer to make a payment of security against their PAYE liabilities.  This is the first time the Tribunal has considered a case where HMRC has invoked the powers in Income Tax (Pay As You Earn) Regulations 2003, Part 4A and Social Security (Contributions) Regulations 2001, Schedule 4, Part 3B. The subsequent failure to pay this security is a strict criminal offence.

In the case of D-Media Communications Ltd v HMRC  the employer was found to be a serious serial defaulter and it had failed to keep to a number of time to pay arrangements with HMRC. Consequently. HMRC was seeking a payment of £147,134.88 as security. 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, the judge thought it appropriate to reduce it to a more reasonable level of £25,000.

One particular point to note is that security was not only required from D-Media it was also required, on a joint and several basis, from the directors of D-Media – and the security was required to be given for a period of 24 months.

As the case says, 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. Thankfully, the Tribunal Judge took his responsibilities seriously in considering the criminal aspects of the offence of failure to provide security and reduced the amount demanded to what might be considered a more reasonable level. However, the very fact that HMRC has chosen to use this legislation – with its potential criminal consequences – gives a strong message that employers and directors need to be aware of.

This could have grave implications for a number of companies that are living hand-to-mouth and continually paying HMRC late.  We can help to prevent a history of default leading to this PAYE / NIC security stage, or if you are required by HMRC to pay a security and cannot afford it please contact your local Restructuring Services (“RS”) team member if you would like to have an initial, free, discussion. 

 Your nearest RS team member can be found by clicking here.