Real Time Information and the overhaul of payroll taxation

In April of this year, we witnessed the biggest change to the PAYE system since 1944. The new system is designed to improve the efficiency by which HMRC collects PAYE and National Insurance contributions, through the use of Real Time Information or RTI. Although most employers ‘went live’ in April, RTI will be compulsory for all companies by October 2013.

Under the old regime, companies had until the end of their financial year before HMRC became aware of any arrears. This often left HMRC with large exposures as unsecured creditors of many businesses.

Therefore, the new regime was designed to give HMRC greater visibility of a company’s contributions and allow them to enforce their position immediately. This new approach by HMRC means that companies need to be more mindful than ever of falling foul of HMRC’s requirements as once they have taken steps to enforce it will need to be dealt with immediately.

The likely result of the RTI initiative is to place further financial pressure on businesses already struggling in tough financial times. HMRC will pursue outstanding tax and one of the best pieces of advice we can give in difficult financial times is for businesses to seek advice on their position as early as possible. Directors should not despair in such times as we are here to offer a helping hand. We can assist businesses with the difficult decisions ahead, including the options of:

– Informal creditors’ agreement
– Company Voluntary Arrangement or CVA
– Administration
– Liquidation

Informal creditors’ agreements and CVAs are unlikely to appeal to HMRC if they are the company’s majority creditor. There are of course other options available such as placing a company into administration with the hope of rectifying it as a going concern. In addition there is the final step of placing the company into liquidation. Corporate Recovery and Insolvency team is on hand to offer guidance on a broad range of insolvency related matters.

Directors should be aware that the corporate veil may not offer shelter in the event that the company is unable to meet the new RTI regulations. The new RTI regime shows an altogether more pro-active approach from HMRC which could well see HMRC looking beyond the limited company to pursue directors individually to recover contributions, particularly in respect of unpaid National Insurance Contributions.

The Companies Act 2006 imposes joint and several liability on directors, meaning that all directors may be found liable for the misfeasance, or general breach of duty, of their own actions or those of a fellow director.

In addition Section 121C of the Social Security and Administration Act 1992 provides HMRC with the authority to seek to recover from the directors, or other officers of the company, any unpaid contributions plus interest and penalties. The receipt of a personal liability notice under the Social Security and Administration Act is sure to be a nasty surprise for many directors. It is important to remember that time is of the essence with such statutory obligations, and directors must not bury their heads in the sand. Therefore, if directors feel that the company is in danger of failing to comply with the new RTI regulations, we recommend that advice is obtained from us without delay.

For advice on this, or any other matter, please contact the Corporate Recovery and Insolvency team.

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