Appendix
S.I. 2014/1283: memorandum from
HM Revenue and Customs
Finance Act 2009, Sections 101 and 102
(Interest on Late Payments and Repayments) (Consequential Amendments)
Order 2014 (S.I. 2014/1283)
1. The Select Committee has requested
a memorandum to:
"Explain why—
a. it was considered justifiable to alter
the effect of what appears to have been an unintended omission,
presumably favourable to relevant taxpayers, in S.I. 2014/992
from a date giving rise to non-compliance with the 21-day rule,
and
b. there is no headnote indicating that this
Order is issued free of charge to known recipients of S.I. 2014/992.".
2. In relation to the query at paragraph
(a), S.I. 2014/992 ("Appointed Day Order") appointed
6th May 2014 as the date from which late interest (section 101
of the Finance Act 2009) applies to payments of income tax deducted
by employers under Pay As You Earn ("PAYE"), Class 1
National Insurance contributions ("NICs") and payments
made under the Construction Industry Scheme ("CIS").
As a consequence, if an employer failed to pay PAYE for the tax
month ending 5th May 2014 by the due date (19th or 22nd May) that
unpaid tax would carry interest from that date until the date
of payment. SI 2014/1283 ("Consequential Order") addressed
consequentials omitted from the Appointed Day Order in relation
to the deductibility of interest when computing profits for tax
purposes. Her Majesty's Revenue and Customs ("HMRC")
is sorry that these consequentials were missed from the Appointed
Day Order.
3. Once the charge to interest arises
under section 101 of the Finance Act 2009, a reference to that
provision should have been inserted into the table of provisions
which prohibit the right to deduct interest in computing profits
for tax purposes. Unfortunately, due to an oversight, some of
these provisions were omitted from the Appointed Day Order and
this omission was not picked up until after that Order had been
laid.
4. Employers are liable to deduct
PAYE and NICs from payments made to their employees, and also
to pay employer contributions in respect of those employees.
Contractors, who make payments of CIS to HMRC could also be employers
and therefore required to pay PAYE and NICs as well. If the Consequential
Order had not breached the 21 day rule, those taxpayers would
have been in the position that interest on any late payment of
NICs or CIS for the tax month ending 5th May 2014 would be deductible
in computing profits but they would not have been entitled to
deduct the interest on the PAYE if that had also been paid late
or any other tax or duty which was paid late in that month.
5. As the relevant statutory provisions
would have been amended for payments due in relation to the tax
month ending 5th June, employers or contractors who did not make
payments of NICs or CIS by the due date in May would be in the
position that:
Interest would not be deductible for
unpaid tax, NICs or CIS up to and including the tax year 2013-14;
Interest would also not be deductible
for any tax unpaid (including but not limited to PAYE) for the
year 2014-15;
However, interest in relation to late
payments of NICs and/or CIS would be deductible but only in relation
to a late payment for the tax month ending 5th May, interest payments
in relation to late payments for the rest of the tax year 2014-15
would not be deductible.
6. This would have imposed a disproportionate
administrative burden upon employers or contractors who paid NICs
or CIS after the due date in terms of record keeping, particularly
considering that deductible amounts would usually be relatively
small for individual employers. It could also have resulted in
employers or contractors erroneously seeking to deduct interest
for payments of tax, NICs or CIS paid late in later months or
failing to deduct the interest payment for that month when legally
entitled to do so. Further, it would have placed a considerable
administrative burden upon HMRC, especially if the sums due were
not paid until a much later date (for instance following legal
proceedings).
7. In the circumstances, and given
that the only employers or contractors affected would be those
who did not pay the NICs or CIS for the tax month ending 5th May
2014 by the statutory date, the course of action which imposed
the least administrative burden upon employers, contractors and
HMRC was to maintain the status quo that existed until 6th May
2014 for all payments made in the tax year 2014-15. Ensuring that
these amounts of interest could not be deducted from profits for
the month ending 5th May 2014 also maintained a level playing
field for all employers so that the amounts were not deductible
for all employers, whichever month the interest related to.
8. HMRC is of the view that on this particular
occasion it was justifiable not to comply with the 21 day rule
given that the purpose of the Consequential Order was to maintain
the position regarding deductibility of interest on late paid
PAYE, NICs and CIS. Employers were already aware that interest
paid on these amounts could not be deducted in computing profits
for tax purposes and without a breach there would have been a
temporary change to the long standing position on deductions of
interest for a very brief period causing confusion and administrative
burdens for employers and HMRC.
9. In relation to the query at paragraph (b),
HMRC did not consider the Appointed Day Order made in April 2014
to be defective, in the sense that it did not contain an error
or mistake which required correction. The Consequential Order
does not correct the Appointed Day Order in that it does not alter
either the days appointed or the consequential amendments made
by that Order. It adds to the statutory provisions that require
amendment as a consequence of the appointment of section 101 of
the Finance Act 2009 to PAYE, NICs and CIS.
10. As a consequence it did not appear that this
was a circumstance in which the instrument should be issued free
of charge in accordance with Statutory Instrument Practice. If
the Committee does not agree with this view, then we apologise
and will ensure that if a similar issue should arise in relation
to any other Appointed Day Order, we will discuss with the Registrar
whether a free issue is appropriate.
Her Majesty's Revenue and Customs
7 July 2014
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