HMRC introduced the Business Payment Support Service for those in genuine cash-flow difficulty but the likelihood is that they will also step up their pursuit of arrears of tax from those who are able to pay but have not done so.
The outcomes of the ‘Late Payment of Tax: Motivations and Sanctions’ report are likely to be seen in announcements in the Budget. HMRC have withdrawn from imposing fixed penalties for non-payment which were regarded as counter-productive and disproportionate but they will be introducing measures to promote timely payment of taxes.
Business Payment Support Service to continue but with restrictions
BPSS is likely to be continued for businesses in genuine need of support but it may be more restricted. HMRC are likely scrutinise applications for delay more closely now that the initial rush for assistance has passed. Businesses will continue to run into difficulties and need the service but HMRC is likely to feel the need to ensure that the service is not being used as a source of cheap credit by businesses to which conventional lending remains available.
Will interest and penalties apply to late payments of PAYE and NIC?
This has the greatest potential to improve cash flow for the government, simply because PAYE and NIC are by far the biggest source of the government’s tax revenue. Income tax and NIC accounted for over 55.3% of tax revenues for 2007/08. Although that figure includes the self-employed as well as employees, PAYE alone accounted for more than 20% of all tax revenue, much more than VAT and almost twice the Government’s corporation tax receipts.
PAYE and NIC payments are due monthly 14 days after the end of the PAYE month. However, there are no provisions for interest or penalties to be applied if payments are made late. HMRC’s system only produces a reminder if no payment at all is received and even when they become aware of non-payment they can only take action through the normal courts system to pursue debts and must rely on the court awarding interest.
Statutory interest on PAYE and NIC unpaid for 2008/09 will not start to run until 19 April 2009 and for 2009/10 the date will be 19 April 2010. Simply imposing interest on late PAYE payments would not be inconsistent with BPSS: under BPSS, payment may be deferred but interest still accrues. Employers needing to defer payment would have to apply for BPSS to apply to their monthly payments or face a fixed penalty for late payment. Equally, penalties may be introduced for deliberate or negligent underpayments of PAYE and NIC.