PAYE – HMRC seeking security

Wednesday, April 21st, 2010

Article by Gavin Hinks of Accountancy Age, posted today

PAYE, Portsmouth and the taxman

Cast your mind back to the Budget earlier this year and you will remember a proposal from HMRC to force organisations to offer security (read our story here). against their PAYE payments.
This was a clear effort by the taxman to stop businesses using PAYE as part of their cashflow management.
Now look at the creditors report out yesterday detailing the appalling finances of Portsmouth Football club.

Total debt is around £92m, which is fine if you can service it all. The club couldn’t. A big chunk of that money owing however is £17m in VAT, NICs and PAYE.
And there you have the reason why HMRC wants security. PAYE returns were being held up by the club, along with VAT and NICs.

The administrator says quite explicitly that the club had working capital difficulties.
The figures bear this out. In the ten months to February this year turnover was £39.6m. Staff costs were £38.9m, or roughly 98% of the total. Add some additional overheads of £9m and you have a club spending well above its means.
Is it any wonder then that we speculated that the new demands for security against PAYE would hit football clubs particularly hard?
The taxman can see from a mile away that once the race is on to acquire top players obligations to the state are not exactly a top priority when it comes up against paying big wage bills.
Crystal Palace remains in administration. Liverpool is up for sale saddled with huge debts. Could there be another so called professional sport where the financial management is so parlous?
Portsmouth club will shortly play in of the FA Cup final. Let’s hope it’s not a last hurrah before a long spell in the football backwaters.

J C Martin & Associates Payroll Bureau Comment –
Ever since the Government Agencies lost their preferred creditor status when a company becomes insolvent, they have been trying to find ways of improving their position. Our previous blog covered the move by HMRC to privatise PAYE, and to use the BACS system to pay all wages (and the PAYE at the same time). Most businesses that have been liquidated have been brought to account by HMRC, with the government usually picking up the tab. One statistic that we have never seen is the value of unused corporation tax losses that are automatically written off by the liquidation event. Individual shareholders may gain some tax relief by off-setting their capital losses against tax, but generally the shareholders lose everything.

The new penalty regime that started on April 6th 2010 is another method now being deployed by HMRC in an attempt to stop the haemorrhaging earlier … or is it to profit along the way?

Times are changing. Keep in step with the changes by utilising our up to date Payroll Bureau and allow our payroll services to help you control your business.

Tags: cashflow, football clubs, HMRC, HMRC penalties, NIC, PAYE, payroll bureau, payroll services, security, shareholders, tax relief, VAT
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