How to Stay Safe from HMRC
21 October 14 | By: Jas Jhooty
HMRC are using their new “Know your Customer” employer compliance campaign to find out what employment tax governance procedures an employer has in place. This involves a three stage process whereby HMRC will attempt to:-
Evaluating tax governance
Prior to the date of the meeting HMRC will request sight of your existing employment tax governance procedures contained in your published documentation e.g.
They will also be looking for evidence of any decision making process maps you may use internally to ascertain the taxable status of any payments you make, that may fall into certain key risk areas e.g.:-
HMRC will also be looking for evidence in your processes that you are seeking to minimise your tax risk by including methodologies to monitor these results and deal with any exceptions.
What if you already have obtained “low-risk” status from HMRC?
Businesses that have previously obtained a low-risk rating as a result of: -
are not immune to HMRC asking them to provide evidence of their current tax governance framework for their “Know your Customer” meeting.
Evaluating tax delivery
At the evaluation stage HMRC will be seeking evidence of what actually happens when these procedures are put into practice. This will be the main basis for discussions at the date of the “Know your Customer” meeting. After having spent time evaluating the contents of your tax governance procedures, HMRC will have a good idea of how your business operates.
To make sure they fully understand what actually occurs within the business (and in an attempt to try to catch you out!), HMRC will expect to talk to key personnel from various departments. These may include HR, Reward & Fleet who do not traditionally get involved in dealing with HMRC as well as Tax, Payroll & Finance.
Even if your tax governance and delivery procedures are in order, HMRC will also want to be reassured that your organisation has a good handle on tax matters moving forwards. To prove this you need to be able to demonstrate that you have used, and will continue to use, appropriately qualified employment tax advice to arrive at key tax decisions. If this is the case HMRC will give your organisation a new “low-risk” rating and have promised to leave such organisations alone for a considerable length of time.
If your procedures come up short HMRC will want to evidence this by performing a perfunctory audit to prove your procedures’ shortcomings. This is a precursor to a full blown Employer Compliance Review and the very real possibility of personal fines being levied on the Senior Accounting Officer (SAO) for making incorrect certifications of “having appropriate tax accounting arrangements in place” on their SAO returns.
What this means for employers
We cannot emphasise enough how dangerous HMRC’s “Know your Customer” meetings are. They are a complete change in methodology from the traditional Employer Compliance Review that most businesses have become familiar with.
Instead of HMRC spending a considerable amount of time & resource examining your records to prove that you have not administered employment tax correctly, now all they have to do is examine your policies and procedures to automatically assume that you have made mistakes, if these procedures are found to be lacking in any way.
How emTax can help
emTax consultants have been actively involved in assisting employers in preparing for their “Know your Customer” meetings. We can advise on devising suitable process maps on key employment tax risk areas that have been proven to be sufficiently robust enough to prevent any further queries from HMRC. We can also assist in coaching all of your relevant staff on how to answer any questions that may be posed to them by HMRC on the date of your “Know your Customer” meeting.
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.
We are currently offering a free initial advisory meeting whereby one of our consultants will visit you and go through our PAYE & NIC Audit questionnaire to highlight any areas of employment tax risk that will need to be addressed before your “Know your Customer” meeting.
If you have any concerns about your upcoming “Know your Customer” meeting, please do not hesitate to contact us by ringing us on 0345 548 3680 to find out how we can help.