Real Time information (RTI) will soon be upon us. As a consequence of this a monthly (or in some cases, weekly) feed of information will tell HMRC what every business owes them in respect of PAYE and National Insurance. It is evident from the latest initiative to name and shame non-payers on their website, that HMRC is pursuing a policy of bullying small businesses into ensuring it gets paid in preference to essential suppliers and employees. Armed with the new information from RTI, it appears likely that its’ aggressive debt collection will be on the increase.
Under RTI there will no longer be an option of benefiting from an ‘interest-free loan’ by delaying the payment of PAYE and National Insurance. HMRC will quite rightly insist that any money owed should be paid on time. However, many companies do not owe money to HMRC each month, and instead it is the other way round, with HMRC owing money back to the business. This situation arises regularly with companies operating within the Construction Industry Scheme if the tax deducted at source exceeds the amount they deduct under PAYE or from their own subcontractors. Under RTI, HMRC will know each month how much they owe back to such businesses and it would seem only fair in these situations that HMRC repay the amount due to companies each month, just as they would expect companies owing them money to pay it to them. Double standards apply however. Whilst HMRC demands money owed be paid monthly, they will not repay money due back to companies on a monthly basis and any overpayments have to be carried forward and claimed at the end of the tax year. HMRC then makes it extremely difficult for companies to claim back the annual amount of overpayment demanding that they provide bank statements showing the receipt of the money, and the vouchers that support the tax deductions. These claims often take so long to process that companies cannot pay their Corporation Tax liabilities as a result of HMRC having not issued the PAYE refund to them.
We consider this double standard to be plain wrong. What is just and fair to HMRC should also be just and fair to UK businesses, but it appears unlikely that this will change anytime soon. In light of this, the only way to avoid potentially serious cash flow problems is for businesses that are subject to CIS deductions to arrange for payments to be made gross to prevent tax being deducted at source. If you wish to discuss these issues and how to obtain gross payment status, please do not hesitate to contact us at DEB Chartered Accountants.