From 6 April 2012 HMRC will be able to ask employers to pay a security where 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 (ie each invoice) made without providing security.
It is probable that in the case of PAYE, this power won't apply until after April 2012. If you have been asked for a deposit specifically for PAYE then we would advise you seek legal advice before continuing to trade.
So if you have difficulty in paying HMRC or are 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.