HMRC PAYE Inspections: Back on the agenda!
HMRC estimates that 43% of the shortfall between tax collected and tax actually due is sitting within the employment sector. It’s no surprise then, that PAYE compliance visits are set to remain high on the Revenue’s priority list.
After a relatively quiet period in terms of employer reviews, we are seeing an increased level of HMRC activity and, as always, preparation is the key.
Outlined below is our guidance on what you need to be prepared for. Ask Rob Ennis, Employment Tax Director, for a discussion on how your business can be in the best position possible for an HMRC inspection, or how to manage an ongoing audit or enquiry.
How HMRC carry out an employer compliance review
A detailed inspection of an employer’s records is still firmly on the cards. So too is a series of interviews with personnel responsible for key areas. Expect Revenue auditors to ask to see your Payroll Manager as well as staff members responsible for employee expenses, benefits in kind, and the use of self-employed workers.
In addition, HMRC might ask to see a member of your HR team to understand the process regarding any payments in respect of termination of employment. It may of course be that one director or employee has responsibility for several areas; the key point however, is that it’s likely HMRC will want to speak to more than one person during any visit.
Where Revenue auditors will focus their attention
Once they move onto the record inspection stage, HMRC auditors will want to review the following areas:
- Payroll (including National Minimum Wage);
- Employee expenses (examining claim forms and understanding the completion and approval process);
- Benefits in kind (including any salary sacrifice arrangements in the light of the new rules from April 2017);
- Employment status (self-employed and other off-payroll workers);
- Payments in respect of cessation of employment (new rules coming in from April 2018)
- Tips and the operation of troncs (for the hospitality sector)
- Employee share schemes
- Workers from overseas (including Short Term Business Visitors Agreements)
- Construction Industry Scheme (where relevant)
The end game
If HMRC auditors identify underpayments of PAYE and NIC, or income tax due in respect of a benefit, they will issue a demand for the arrears. Usually they aim to collect amounts underpaid for a four-year period, but this can be extended to six years in the case of negligence, and twenty years where they can prove fraud.
Penalties can go up to 100% of the amounts underpaid, but this figure can be reduced dramatically, or even suspended.
A PAYE Healthcheck can provide peace of mind that there are no hidden problems or risks building up in your organisation. If any areas of concern or oversights are identified, we can advise on the best manner to correct matters. Dealing with any errors early can save your business significant costs, penalties and time in the future.
Our recommendation is prepare now, ensure your processes are sufficiently robust to withstand HMRC scrutiny and be ready!
For a free, no obligation discussion about your PAYE processes, to discuss any ongoing audit or enquiry, or to request a quote for a PAYE Healthcheck, please contact Rob Ennis.
Our fee protection insurance covers the cost of our professional fees for helping you respond to an employer compliance review. Ask Louise Beddoes for further information.