A time to pay and name and shame

Wednesday, March 17, 2010 | Posted by: Dave Jennings
Categories: Personal, Protecting your wealth | Tags: tax, tax planning, HMRC, offshore, Dave Jennings, investigation, penalties, legislation, law, human rights

As the recession started to bite, HM Revenue & Customs (HMRC) relaxed its enforcement of debts for some taxpayers facing cashflow problems. Paying arrears by instalments has helped many businesses but may become even more important as new PAYE penalties for employers start in April 2010…

New penalties for late PAYE
Starting with the new tax year on 6 April 2010, HMRC will impose penalties for any late payments of PAYE tax or National Insurance. For in-year Class 1 National Insurance Contribution (NIC) primary and secondary (employees and employers), this will be on a sliding scale depending on the number of late payments in any one tax year. The rate goes from 1% for two or more late payments to 4% for 11 or more. The penalty is charged on the amount of duty paid late. So if one month’s PAYE tax and NIC was £100,000 and this was the second late payment of the year, the penalty would be £1,000. A further penalty of 5% is charged if the payment is more than six months late, and a further 5% will be charged if the payment is 12 months late.

For annual Class 1A and Class 1B NIC, the penalty will be 5% of any payment more than 30 days late, a further 5% if the payment is more than six months late, and a further 5% is charged if the payment is made more than 12 months after the due date.

The rules are quite draconian and there is no leeway unless a reasonable excuse is accepted by HMRC. Missing a payment by just one day could result in the penalty being charged. So cheques have to be posted in good time or electronic transfers arranged in advance.

Tomorrow, and tomorrow, and tomorrow
However, if your business has cash flow difficulties and approaches HMRC before a payment becomes due, and HMRC agrees to an instalment plan, then the late payment penalty will not be charged.

Time to pay arrangements have become a lifesaver for many businesses and individuals. The scheme has agreed 300,000 arrangements covering £5.14bn of tax. The good news for HMRC is that the vast majority of arrangements have also been maintained and HMRC has eventually received its money.

Of course, HMRC will review the proposals and unless they are not large amounts for periods exceeding three to six months, it is very likely that HMRC will agree to the request. However, if the taxpayer requires a longer period, has had previous arrangements or is varying an existing agreement, then specialist advice may be required. HMRC is very likely to require more financial information before agreeing to an instalment request.

It isn’t just the new PAYE penalties that need to be considered when cash becomes tight, but also VAT surcharges. If a business waits until the VAT due date has passed, then the VAT surcharge period and penalty is likely to be enforced by HMRC.

What’s in a name?
Continuing with new items, HMRC has recently confirmed that its policy of ‘naming and shaming’ taxpayers evading taxes in excess of £25,000 will start after 1 April 2010. Offending taxpayers will be included on an online register. As all cases will have a right of appeal, and this penalty will only apply for tax evasion occurring after 1 April 2010, it is likely to be some time before the first list appears. However, the list will include sufficient information for the tax evader to be identified.

This is obviously an aim of HMRC to deter businesses and individuals from not paying the correct tax. It will not include cases where extra tax results from a difference of opinion over legislation. The aim is to publicise taxpayers found guilty of deliberately understating income.

The original announcement for this was made in the 2009 budget. HMRC is now linking this potential punishment with the continuing probe into offshore bank accounts. If a taxpayer volunteers information to HMRC before it starts a tax investigation, even though the formal offshore disclosure facilities have now closed (apart from the Liechtenstein facility), then the taxpayer should not be ‘named and shamed’.

This is all indicative of a continuing tightening of HMRC’s powers and its aim to reduce the tax gap.

Read more posts by our Tax Investigations Senior Manager Dave Jennings.