How to Stay Safe from HMRC
15 May 14 | By: Jas Jhooty
With the government attempting to lower the fiscal deficit without raising any taxes, HMRC has been tasked to increase revenues with a 25% reduction in their running costs. To achieve this HMRC is half way through an ambitious restructuring program with one of their stated aims being to double compliance yields to £25 billion per annum by 2016.
With employment taxation accounting for over half of all income raised annually for HM Treasury, it comes as no surprise that this is the area that will be receiving the most scrutiny by HMRC over the coming months and years, in order that their ambitious compliance targets are met.
Senior Accounting Officer legislation
Senior Accounting Officer (SAO) legislation was first introduced in 2009 to make senior personnel within a large corporation personally responsible for ensuring that all areas of taxation were being appropriately governed.
HMRC allowed a bedding in period of 3 years where they promised not to take any enforcement action to allow qualifying companies to get used to their new obligations. In 2012 HMRC announced that their previous period of a light touch was over.
This was followed by detailed new guidance issued in August 2013 that spelt out for the first time the level of detail HMRC expected to see in a qualifying company’s tax accounting arrangements.
Unsurprisingly given HMRC’s stated aims to double compliance yields, employment tax was highlighted as a particularly large area of risk in this new guidance.
HMRC also warned that they were no longer prepared to accept any woolly or ambiguous certificates from SAOs. SAOs who do not supply qualified certificates in any areas of tax accounting where they may have any doubts would be liable to incur financial penalties that they would be personally liable for, as they were failing to adhere to good corporate governance procedures.
Employer Compliance Champions
At the same time as the new guidelines were published, HMRC began the process of recruiting nearly 100 external consultants as “Employer Compliance Champions”. These recruits all have industry backgrounds and are familiar with what the actual practices are that typically occur in particular industries. Since autumn 2013, these “Employer Compliance Champions” have been busy training a veritable army of new HMRC employer compliance officers who now have fresh new industry focussed knowledge of what to look for when they visit an employer.
“Know your Customer” initiative
In recent years HMRC have been focusing their employer compliance activity only on single specific areas of high risk within a large organisation. The thinking behind this approach was that it was easier to train compliance officers in only one area of taxation. An added bonus to HMRC was that review times would be quicker and subsequently more employers could be investigated in a given time frame.
However HMRC has recently started a new compliance initiative called “Know your Customer” and it is part of their drive to collect more revenue from employers. HMRC are using this initiative to delve into all aspects of employment taxation within businesses hoping to discover any lax policies that may be currently in place. If an employer’s policies around aspects of employment taxation are not perceived to be robust enough, HMRC will use this as an excuse to issue demands for unpaid tax & NIC that will go a long way to achieving their increased compliance yield targets.
What SAOs should be doing right now
SAOs who have any doubts whatsoever about their employment tax policies and procedures must now ensure that these are reviewed as a matter of priority to ensure that they are well documented. Having reviewed these policies they should be updated for the latest legislative developments and best practice generally. The importance of having policies, processes and controls in place cannot be underestimated. They should also ensure that the correct tax treatment is routinely applied and that there is a robust methodology for testing what actually happens in practice, along with a working feedback mechanism to put right any mistakes that may arise from time to time.
If robust procedures are not perceived to exist, HMRC will have no qualms in issuing personal penalties against SAOs who may have made incorrect certifications about their tax accounting arrangements.
How emTax can help
Our consultants are all ex-HMRC Employer Compliance Inspectors and also have many years of experience of working as senior managers within the “Big 4” accountancy firms. The only difference between our employment tax advisory service and that which the “Big 4” offers is that our fees are a small fraction of what they charge.
Our consultants can assist you in the review of your current employment tax policies and procedures in preparation of your inevitable “Know your Customer” meeting. We offer value for money advice on all employment tax matters and specialise in conducting Benefits & Expenses policy reviews across all industry sectors. If any errors are discovered we can advise you on how to disclose these to HMRC to minimise any penalties.
We are currently offering a free initial advisory visit where one of our consultants will go through our PAYE & NIC questionnaire to try to identify any areas of weakness in your current employment tax procedures.
If you are interested in this or any other employment tax related service, please do not hesitate to contact us.