Extension of security deposit legislation
Published 6 July 2018
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Who is likely to be affected
Businesses that are contractors under the Construction Industry Scheme (CIS) and companies chargeable to UK Corporation Tax, where there is a history of not complying with tax obligations.
General description of the measure
This measure extends the scope of the existing security deposits regime to include Corporation Tax and CIS deductions.
HMRC currently has the power to require high-risk businesses to provide an upfront security deposit where this is considered to be necessary for the protection of the revenue. At present this power applies only to VAT, PAYE and National Insurance contributions, Insurance Premium Tax (IPT) and some environmental and gambling taxes. This measure will give HMRC the power to also require securities in relation to Corporation Tax and CIS deductions where there is a risk to the revenue.
Policy objective
The vast majority of businesses meet their tax obligations and pay the right amount of tax at the right time. However there is a small minority that choose not to pay the tax they owe - HMRC has a duty to take action to prevent loss to the Exchequer and ensure that these businesses do not gain an unfair advantage over the compliant majority.
Experience from the existing securities regime has shown that, when used in a carefully targeted manner, securities can be very effective in changing the behaviour of non-compliant businesses and protecting future revenues against the risk of non-payment. Currently these powers apply only to certain taxes and duties.
This change addresses gaps in the coverage of the existing securities provisions to strengthen HMRC’s ability to deal effectively with the small minority of rule breakers that will not pay, rather than cannot pay tax that is due. Businesses that are experiencing genuine difficulties are not the target of this measure.
Background to the measure
The government announced at Autumn Budget 2017 that it would extend the scope of securities to Corporation Tax and CIS deductions.
A consultation on the implementation of this change was held between 13 March and 8 June 2018.
A summary of responses along with draft legislation for consultation was published on 6 July 2018.
Detailed proposal
Operative date
The measure will have effect from 6 April 2019.
Current law
There are separate legislative provisions for each of the taxes and duties that currently fall within the scope of securities. Current powers to require security are contained in:
- VAT: Value Added Tax Act 1994, Schedule 11, paragraphs 4(1A) and 4(2)
- PAYE and NICs: Income Tax (Earnings and Pensions) Act 2003 section 684, and Part 4A of Income Tax (Pay As You Earn) Regulations 2003 and Part 3B of Schedule 4 of Social Security (Contributions) Regulations 2001
- Landfill Tax: Finance Act 1996, Schedule 5, paragraph 31
- Aggregates Levy: Finance Act 2001, section 26(1)
- Climate Change Levy: Finance Act 2000, Schedule 6, paragraph 139(1)
- Insurance Premium Tax: Finance Act 1994, Schedule 7, paragraph 24
- Betting Duty, Pool Betting Duty and Remote Gaming Duty: Finance Act 2014, section 170
Proposed revisions
It is proposed that the legislation for Corporation Tax and CIS securities will broadly follow the approach used for PAYE securities, and that the detail of HMRC’s powers to require a security will be set out in regulations.
Legislation will be introduced in Finance Bill 2018-19 to insert a new section 70A into Chapter 3 of Part 3 of Finance Act 2004. This will give HMRC the power to make provision, in regulations, requiring a person to give a security in respect of CIS deductions due to HMRC, where HMRC considers it necessary for the protection of revenue. It will also make failure to provide a security when required to do so an offence, which may be penalised by a fine. A new paragraph 88A will be inserted into Schedule 18 to Finance Act 1998 to give similar powers in respect of a company’s Corporation Tax liabilities.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| - | -5 | +70 | +135 | +150 | +150 |
These figures are set out in Table 2.1 of Autumn Budget 2017 as ‘Insolvency use to escape tax debt’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Behavioural adjustments have been made to take account of the future compliant behaviour of those targeted with a securities intervention.
Impact on individuals, households and families
There is no impact on individuals or households as the measure only affects businesses. There is no impact on family formation, stability or breakdown.
Equalities impacts
Securities are targeted exclusively at high risk businesses, where there is clear evidence of non-compliance with tax obligations or personnel actively involved in a current business were actively involved in another business that failed to pay tax due. We do not hold data relevant to equalities impacts in relation to any protected characteristic.
Impact on business including civil society organisations
This measure will have no impact on compliant businesses who are meeting their tax obligations and paying the right amount of tax. It will only impact on those businesses who are not complying with their tax obligations. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will need to make changes to its IT systems to process the new security cases and the cost of these changes is estimated in the region of £840,000. It will also incur operational costs currently estimated in the region of £5 million.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Alison Gardiner on telephone: 03000 586054 or email: [email protected].