Employer Compliance Visits by HMRC
This is a longer article than those that we usually publish, however it’s a very important issue and we make no apologies for covering it in some detail. As ever, we strongly advise that if you have any specific questions, you should call or email us, we are here to help.
As restrictions begin to lift and workplaces reopen, it seems highly likely that the HMRC Employer Compliance Teams will be increasing their activities, particularly in relation to furlough claims.
The purpose of compliance visits is to confirm that PAYE has been properly operated on all earnings and payments in accordance with the rules and regulations, as set out in the booklet, Employer’s Further Guide to PAYE and NICs (CWG2).
The bottom line is that the Chancellor wants some of his money back, and HMRC will be giving some employers not so much a quick once over, more a case of getting out the fine toothed comb.
What to do if your business is selected for your review?
Well, first things first…Don’t Panic!
You will receive a letter advising that you have been selected for review and it will probably include a time for a phone call to arrange the visit.
The Inspector is likely to want to visit your business premises to look at the records. There is a reason for this, but you do not have to agree to them coming to your premises. We will be happy to host the Inspector, which will mean that you don’t give them an opportunity to interact with clients, customers or employees.
We are not for one second suggesting anything underhand, and we would always advise that every possible professional courtesy is extended to the inspectors, they are after all just doing their job. We just feel that it makes sense for you to have your accountancy team by your side.
We deal with HMRC teams on a regular basis and in our experience they are consummate professionals, with an absolutely clear idea of what they need and how much time they will spend with each case.
You are not obliged to agree to be interviewed by the Inspector, but if you do agree to a face to face meeting, bear in mind that the Inspector will have a checklist of questions, much of which may not even apply to you. Please don’t fall into the trap of making snap responses to the questions they ask.
Think carefully before you respond to questions because you cannot unsay things, but you can always ask to check details and come back to them.
Very often you will find that questions unanswered at the start of an inspection are deemed irrelevant by the end of the interview. The HMRC teams know what they are doing, and will not waste your time or their own, pursuing answers to questions that have little or no relevance to the situation at hand.
How long will it take?
Most small to mid-sized business reviews should take no more than half a day for the review of the records. The Inspector will probably want to speak to you once they have finished looking at the records, and will return to any of the original questions that they think they still need an answer for.
This post review conversation should give you an idea of what, if anything, the Inspector has discovered and focused on. You may at this meeting give any additional information that is needed, but if you are concerned that the information is going to cause you problems you can buy additional time for yourself by agreeing to send it over to HMRC later.
You are perfectly within your rights to say you want to discuss things with your accountant before responding.
What happens then?
After the review, the Inspector will do any further work and write with their findings. If the Inspector thinks they have found errors be prepared for the long haul, especially if you don’t think that the Inspector is right in their opinion.
As mentioned earlier, you are not obliged to agree to a face to face meeting and we would be more than happy for one of our tax team to stand in your place for the discussion of the records, in order to take a lot of the stress out of the day for you.
The HMRC team is likely to check:
PAYE deduction working sheets for completeness and accuracy
Correct use of employee codes
Reconciliation of the records with the Final FPS (Full Payment Submission) and/or EPS (Employer Payment Summary) for the tax year
Correct treatment of new employees and leavers
Cash payments where PAYE has not been operated
Expense payments, employee benefits, and their correct disclosure on forms P11D
Compliance with terms of any dispensation
Compliance with sub-contractors’ rules
Compliance with NIC regulations
Potential challenges (problems)
From experience, the main areas where problems may arise include:
- Gross payments to casual employees
- Payments to ‘self-employed’ persons
- Lump sum expenses
- Private petrol
- Spouse’s travel and subsistence
- Travel to work from home and vice versa
- Trips for purposes other than purely business, e.g. trade fairs, golf, social outings
- Home telephone
- Expenses for use of home as an office
- Club subscriptions
- Goods and services provided free or below market value
- Lunch expenses
- Work undertaken at an employee’s home
- Medical expenses
A note about Casual Labour
Under the system of RTI, HMRC require employers to complete a New Starter Checklist for all casual employees, this checklist replaces the form P46, which is no longer completed under RTI.
The checklist provides the information needed to correctly operate PAYE for a new employee. The checklist can also be used to help fill in the first Full Payment Submission (FPS) for the employee. If the employee signs that it is his or her first job since last 6 April, then PAYE and NI need not be deducted unless the payment is in excess of the NI primary threshold, currently £169 per week.
HMRC expect employers to keep this information for three years and where the checklists have not been completed HMRC may seek to charge employers for tax and NI contributions on the grossed-up amount of these payments, often regardless of whether or not any tax has actually been lost to HMRC.
Whether or not tax or NI is payable, you must keep proper records of payments and persons paid.
Settlement with HMRC findings
The majority of compliance visits result in some discrepancies being uncovered, and HMRC will usually calculate the ‘lost’ tax and NI over a period of six years plus the current year. This period may be extended if they suspect that errors have been made deliberately.
HMRC may also seek penalties, although these will normally depend on the gravity of the discrepancy and the existence or absence of ‘reasonable care’.
How can Butt Miller help?
Because prevention is better than cure, we can assist in reviewing your wage and salary records with a view to identifying possible areas of non-compliance with PAYE and NI regulations.
If a compliance visit is made we can help you at all stages from setting up the initial review meeting right through to negotiating a settlement with HMRC.
Thank you for ploughing through this article, we did say that we make no apologies for the detail included. As with every matter, we strongly urge you to seek professional advice with any question or query, we are here to help so please call or email today.