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Will HMRC’s security deposit compound existing problems?

Will HMRC’s security deposit compound existing problems?

Contractor accountants may be aware that as from the 6th of April, HMRC will be allowed to request a financial security from businesses it thinks are in danger of defaulting on their NICs or PAYE payments. Companies that fail to comply with this requirement will be committing a criminal offence and could face a fine of up to £5,000.

Roy Maugham, one of UHY Hacker Young’s tax partners, said that these new rules are designed to stop companies deliberately defrauding the Revenue, but the current economic climate means that honest businesses that are struggling to survive could also get caught in the security net.

HMRC has strongly denied that genuine businesses will be affected, saying the new rules target those employers who make deductions from their employees but have no intention of passing on the income tax and NICs to the taxman.

However, as Maugham points out, businesses that are already struggling will have to borrow money to pay this security, especially at HMRC has clamped down on the Business Payment Support Service, which allowed businesses with financial difficulties more time in which to settle their tax liabilities.

The size of the security deposit will be based on the perceived risk of default, and with bank loans hard to come by, this could compound existing problems for some firms. Maugham went on to say that a lot of businesses that withhold NIC and tax are simply trying to keep afloat and these new rules could mean they have to make a choice between criminal prosecution or mass redundancies.

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Image: 50 pound notes on white by Images_of_Money

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