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How to survive your HMRC Know your Customer meeting

12 June 15 | By: Jas Jhooty

KYC

In recent years HMRC have changed their approach to employer compliance. Under the guise of a Know your Customer (KYC) meeting, HMRC inspect an employer’s policies and procedures in detail to try to catch the unwary employer out. Instead of inspecting actual records HMRC will make the automatic assumption that an employer has done something wrong just because their policies and procedures are perceived not to be robust enough.

Know your Customer methodology

There are published HMRC instructions that spell out how these meetings should be conducted. These can be found here . These instructions outline a three stage process which we have previously described in detail in this article.

Variations

However it has come to our attention that how strictly these guidelines are followed depends on the quality of the particular HMRC officials conducting the meetings. In our experience no two KYC reviews are the same. In some instances the basics of examining policies and procedures is not even undertaken and the KYC meeting is just a friendly chat lasting no more than an hour. In other instances HMRC officials inspect an employer’s policies & procedures in minute detail and then insist on meeting with staff from different departments separately in the hope of proving there is no cohesive tax strategy in place.

Best practice

When we advise our clients on how to prepare for their upcoming Know your Customer meeting we adopt best practice and prepare for the worst case scenario. We make sure that all employee facing policies relating to: -

  • Hiring
  • Expenses
  • Termination
  • Salary sacrifice
  • Benefits
  • Etc

are up to date, accurate and written in plain English. We then help our client to prepare internal instructions of how to police these policies and map out the processes of dealing with any anomalies.

We then make sure that all relevant staff understand the tax significance of their role in their particular process map

Example

As an example, the correct recording of business mileage can have a significant tax impact if not collated accurately. The process map for recording business mileage would first of all ensure that drivers are given an adequate explanation of the importance of recording business mileage accurately on a journey by journey (& hopefully postcode to postcode) basis. Associated issues such as whether or not the employee is travelling to a Permanent Workplace and so should not claim the costs of that journey should also be addressed in the expenses policy.

Then a regular auditing mechanism should be put in place. If the employer has an electronic expenses system this should be a relatively easy task. The finance department should have instigated a process for spotting exaggerated mileage claims and there should also be a mechanism for recognising any home to office journeys. This normally involves getting a feed of current home addresses from the HR department. Finally the fleet department should also be involved in identifying those drivers with the lowest proportion of private mileage so that their business journeys can be examined in more depth. This is exactly what HMRC do when they conduct an Employer Compliance Review. .

Process maps

In our experience taking the time to prepare such process maps has proven to be invaluable in getting an employer through their KYC meeting. Staff from different departments gain an understanding on how their role fits into governing tax decisions within an organisation. These process maps can even be used as crib sheets to ensure no inadvertent incorrect answers are given to HMRC during the staff interviews stage of the KYC process.

How emTax can help

Our consultants have extensive experience of getting employers successfully through their KYC meetings. Amongst the many services we offer we can advise on preparing or reviewing process maps that guarantee getting an employer through their KYC meeting.

To help you prepare for your KYC meeting we can send one of our advisers to meet with you and go through our 120 point audit questionnaire to assess your current level of risk. This is a service we provide free of charge and will definitely help to focus your efforts on those areas that require most attention.

If you are interested in this or any other employment tax related service please do not hesitate to contact us.

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