We want to start a new company soon but I understand that HMRC may request a PAYE security deposit.
PAYE Security Deposits
From 6 April 2012 HMRC have been able to ask employers to pay a security when there is serious risk that they won't pay over their PAYE tax deductions or Class 1 National Insurance contributions (NICs).
HMRC have had the power to demand VAT security deposits under paragraph 4(2)(a) of Schedule 11 to the VAT Act 1994. Please see our page on VAT security deposits.
The reasons that HMRC will demand a deposit for PAYE and NIC will no doubt be along the same lines as before with regard to VAT.
The director or directors of the new company have had multiple business failures.
The director or directors have failed to comply with tax legislation in the past.
The director or directors have a history of not paying taxes on time.
HMRC are becoming increasingly aggressive towards companies that have been using unpaid tax as a quasi loan from the government.
There is already anecdotal evidence that HMRC have been asking companies to pay deposits against PAYE where the company mainly trades in cash.
What if we don't pay the PAYE deposit?
You must pay it or cease trading. Or if you seek to ignore the demand, it is a criminal offence to continue to trade without providing the required security and HMRC may prosecute if the deposit is not paid upon demand. Under section 37 of the Criminal Justice Act 1991 a magistrate may impose a fine of up to 5,000 for each taxable supply (i.e. each invoice) made without providing security.
If you have difficulty in paying HMRC or you're building up arrears of VAT or PAYE, then please talk to us - Especially if you are thinking of buying back the business out of administration or liquidation.
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.