HMRC have issued a reminder about new powers to tackle employers who consistently pay their PAYE or National Insurance contributions (NICs) late and which come into effect this spring.

From April 2012, HMRC can require employers to pay a security, where there is serious risk that they won't pay over their PAYE tax deductions or NICs.

The new power will be targeted at employers who deduct money from employees’ pay packets, under the pretext of paying their employees’ income tax and NICs, but have no intention of paying it to HMRC. These employers often build up substantial PAYE and NICs debts, and ignore HMRC's attempts to contact them. In some cases, the business becomes insolvent, to avoid tax, and sets up a new company soon after, to continue trading (known as a “phoenix company”).

This is an extension of a power that HMRC already have in place for VAT amongst some other taxes. HMRC are clear however that this will not affect employers who have genuine payment difficulties. Employers who have genuine problems paying their PAYE and NICs should contact HMRC as soon as possible. Visit www.hmrc.gov.uk/payinghmrc/problems/cantpay.htm for more details.

The required security will usually be either a cash deposit from the business or director, or a bond from an approved financial institution that is payable on demand. HMRC will calculate the amount of the security on a case-by-case basis, depending on the amount of tax at risk, the employer's previous behaviour and other risks.

Businesses that fail to provide a security face a fine of up to £5,000, which will be enforceable by the courts.

More information on the new measure can be found at www.hmrc.gov.uk/thelibrary/tax-paye/paye-securities.htm