I have a few questions on the clause. The Minister has indicated that he intends to introduce regulations to bring the measure into effect on 6 April 2012. Will he indicate when he intends to do so? In terms of parliamentary procedure, will they be negative or positive? I think the Minister would also welcome the opportunity to comment on the concerns that have been expressed about the width of the provision once again. I would welcome clarification about who in HMRC has responsibility ultimately for issuing demands for security and how any right of appeal against that demand would be forthcoming. If the Minister can give some pointers on those issues it would be very helpful.
The clause provides HMRC with the power to require a security from employers where there is a serious risk that they will not meet their PAYE obligations. It also creates a criminal offence of not providing a security when one has been required. It might be worth setting out a little bit of background before responding to the questions raised by the right hon. Gentleman.
Obtaining a security from creditors is a normal feature of business. HMRC can already require businesses to provide such a security where it believes VAT or other indirect taxes are at risk. For example, a security is frequently sought in the case of phoenix traders who repeatedly disappear before settling their tax liabilities, only to reappear under a different name. As the same risk applies to PAYE and NICs, it is right to take this action and to protect the Exchequer.
The Government are clearly committed to making sure that everyone pays their fair share. This activity performed by a small minority of employers damages the ability of the tax system to deliver its objectives, imposes additional costs on all taxpayers and undermines the tax system. This power is restricted by regulations to the seriously non-compliant. These are employers who are determined not to pay, those involved in “phoenixism” or contrived liquidations, and those who build up significant PAYE and NICs debt with little or no response to contact by HMRC. The changes made by the clause will ensure that HMRC secures these PAYE and NIC debts. While it is estimated that £5 million additional yield would be gained from using PAYE security, simply having the power is expected to protect in the region of £150 million per year.
A consultation document, with draft regulations, was published in December last year. HMRC held six meetings with representative bodies who were generally supportive of this measure and the criminal sanction attached to this power. It felt that the sanction was needed to target the seriously non-compliant segment of taxpayers who would not pay their PAYE. The Chartered Institute of Taxation said:
“HMRC should come down hard on those employers who deliberately refuse to pay over PAYE and NICs that is properly due and in breach of their obligations as an employer.”
The draft regulations exclude employers who employ personal employees, and those who are care and support employers. These safeguards were welcomed. To ensure that the power remained strictly focused on the seriously non-compliant, HMRC was asked to take all reasonable steps to ensure that taxpayers were aware of time-to-pay arrangements. The Government made it clear at the Budget that time-to-pay arrangements would continue to be available to help taxpayers who genuinely and temporarily could not pay their tax bills, and further changes have been made to the regulations to provide that protection.
There was some concern that HMRC might automate the security process and thereby go beyond the seriously non-compliant. This does not occur for VAT securities, which are given case-by-case consideration, and this will continue for PAYE. I hope that this reassures Members that the vast majority of employers will be unaffected by this measure and addresses the concern expressed by the right hon. Member for Delyn about the width of the measures. Only a small number of employers who have been passing their tax liabilities on to the taxpaying population will be negatively affected. HMRC will also expose draft guidance for consultation in good time before the power comes in.
The right hon. Gentleman asked about the regulations. They will be introduced in early 2012, and will be subject to the negative procedure. He asked which authorised officers or commissioners would be responsible for issuing securities. Implementation of PAYE and NIC security will follow the current VAT process, which ensures that authorisations to request the security are made at least at higher officer level. He also asked about the right of appeal. A wide right of appeal against the requirement is included in the regulations.
The measure will meet the Government’s objective to come down hard on those who do not meet their tax obligations at the expense of those who do.