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HMRC's Employer Compliance Reviews at a record high
27 October 15 | By: Jas Jhooty
Recently revealed figures show that HMRC opened a record number of 2,488 Employer Compliance Reviews in 2014-15, compared with 2,197 in 2013-14. This is an increase of 13%.
What we are also experiencing is that most employers are being unfairly penalised, even in cases of genuine error. Typical penalty fines range from between 10% to 30% for genuine error cases and in some instances have been as high as 60% of the taxes owing in cases of deliberate evasion
“Know Your Customer” initiative
HMRC have been tasked to raise an additional £26.3 billion through increased compliance activities in the current year. HMRC’s new “Know Your Customer” initiative is being used by HMRC to allocate their resource efficiently to quickly decide which employers should be targeted for full blown Employer Compliance Reviews.
HMRC “easy wins”
These Employer Compliance Reviews represent an opportunity for “easy wins” for HMRC, due to the number of genuine errors made by employers when calculating employment taxes.
Employment taxes are a hugely complex area where the tax liability can be affected by a range of considerations, and HMRC knows that most employers are likely to have made mistakes.
Key risk areas
The following are the key areas of risk that employers should be addressing now to ensure they pass their “Know your Customer” meeting with HMRC and thus avoid an Employer Compliance Review:-
Expenses policies & proceduresExpenses reimbursement procedures remain an area of detailed scrutiny by HMRC. As part of the “Know Your Customer” initiative HMRC can quickly establish how thorough your policies are around high risk areas such as: -
- Business mileage recording
- Permanent Workplaces being correctly identified
- Entertainment costs being correctly identified
- How you analyse Overnight Incidental Expenses costs associated with hotel invoices
HMRC will also check how easy it is to police your expenses procedures. Having outdated policies and paper based expenses collation systems policy all serve to demonstrate that employment tax is low on your list of priorities.
HMRC will be very interested in how you decide to pay any workers off-payroll. As being self-employed is not a matter of choice and depends on case law rather than any statutory tests, HMRC will not only be looking at the contracts for engagement but also with what actually happens in practice. If HMRC decide the incorrect employment status has been applied they will recategorise the worker to an employee and the ‘employer’ will be liable for all PAYE/NIC arrears.
Those employers engaging Personal Service Companies should also be concerned as there is a consultation underway on making engagers responsible for deducting PAYE/NIC from invoices received from Personal Service Companies.
Making sure that employers know how to tax the various elements making up a termination payment will also be looked at closely by HMRC.
Any payments relating to Payment in Lieu of Notice, Garden leave & Restrictive covenant clauses have to be taxed and subject to NIC. The correct taxation of ongoing post-termination benefits provided to the employee will also be checked.
There is also a consultation underway to change the whole basis of the taxation of termination payments and HMRC will be checking that you will be able to apply any new rules effectively once they come into force.
Other areasOther risky areas include: -
- The correct operation of Salary Sacrifice Schemes
- Construction Industry Scheme issues
- How you monitor your Short Term Business Visitor agreements
- International assignees
How emTax can help
As specialists in affordable employment tax advice, our consultants can help you to prepare for your upcoming HMRC “Know Your Customer” meeting by reviewing and improving your existing employment tax policies and procedures.
We are offering a free initial advisory meeting where one of our consultants will go through our 120 point employment tax risk questionnaire to ascertain which areas you may need to pay attention to.
To take advantage of this free offer please do not hesitate to contact us.