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Should you make a voluntary disclosure on PAYE matters to HMRC?

10 September 14 | By: Jas Jhooty


No employer has perfect employment tax procedures in place so it is inevitable that occasionally errors will occur. When it is found out that unpaid tax and National Insurance liabilities have inadvertently arisen, the question that the employer has to answer is whether or not to make a voluntary disclosure to HMRC. This article explains the advantages and pitfalls of making voluntary disclosures.

HMRC stance

Unsurprisingly HMRC actively encourage employers to make voluntary disclosures. The current regime for penalties offers much reduced penalties where errors are brought to HMRC’s attention rather than HMRC finding these for themselves. E.g. during a “Know your Customer” review.

Pitfalls of disclosing voluntarily to HMRC

Considerable care must be taken when making a voluntary disclosure to HMRC. The following points must be considered to ensure that HMRC do not use your voluntary disclosure to open up a formal enquiry:-

  1. The reason for the error
  2. What to include
  3. What years to cover
  4. The calculation of the unpaid tax & NIC liability arising
  5. What you think the penalty proposals should be
All of the above factors need to be detailed fully in your disclosure. The most important factor is the reason for the error arising. This has to be explained fully while casting the employer in the best possible light. The disclosure should also outline the steps that have been subsequently taken to prevent such errors from reoccurring. eg
  • Ensuring processes and procedures are fit-for-purpose, especially around employee expenses
  • Having up-to-date and robust policy documents to demonstrate compliance is taken seriously
  • Ensuring P11D Dispensations and PAYE Settlement Agreements are in place and up-to-date
  • Making absolutely sure that no other errors or areas of concern are lurking in the background just waiting to be found

These steps are in line with current recommended Senior Accounting Officer guidelines.

Advantages of making a voluntary disclosure

Reduced penalties

The most obvious advantage is that much reduced penalties will be imposed. The difference in penalties to be charged can be as much as 70% between errors being “unprompted” (voluntarily disclosed) and “prompted” (HMRC identified).

Settlement negotiation

It is far easier to negotiate better settlement terms with HMRC when errors have been reported upfront and where HMRC can see that the employer is trying to do their best and “play” fair.

Better ongoing relationship with HMRC

HMRC profiles employers for their level of risk before deciding whether or not to undertake an Employer Compliance Review. If HMRC considers your business to be a high risk for PAYE tax compliance then they will almost certainly be looking more closely at your affairs, and more regularly, than they did before.

Demonstrating an honest, proactive and effective approach to PAYE compliance when making a voluntary disclosure always has long term benefits in an employer’s relationship with HMRC.

How emTax can help

Making a voluntary disclosure to HMRC when PAYE errors are uncovered is absolutely recommended. But it is vital to get the disclosure right to ensure that your business gets the full benefits of upfront flagging up of issues to HMRC.

Carefully consider the points raised above when pulling together the disclosure letter and we highly recommend that employers take appropriate advice in the process because HMRC will certainly pull it apart if there is an “amateur” feel to the information being provided, which can have huge repercussions for the business.

emTax consultants have vast experience of representing employers in their liaisons with HMRC. We have successfully agreed favourable settlements for employers for voluntary disclosures on many occasions. As our fees are only a fraction of what the Big 4 charge we are confident that we can save you money in both the preparation of the voluntary disclosure documentation and in the final settlement figure agreed with HMRC. Please do not hesitate to contact us if you are interested in this or any other employment tax matter.


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