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Will HMRC’s new “Know your Customer” initiative cause you problems?

7 May 14 | By: Jas Jhooty


Recently HMRC have changed their methodology of how they conduct Employer Compliance reviews. In recent years HMRC have been focusing their compliance activity on single specific areas of risk e.g.:-

Compliance yields based on this fragmented approach (although very successful in the short term) are now starting to dry up as most large businesses have now been reviewed. Therefore HMRC has started a new compliance initiative called “Know your Customer” and it is part of their drive to collect more revenue from employers.

HMRC Employer Compliance Champions

HMRC have been recruiting a number of “Employer Compliance Champions” from outside of the Civil Service who have previous experience of working within different industries and are familiar with the practices occurring in those industries.

“Know your Customer” meetings

These champions have started writing to large businesses, as part of the “Know your Customer” initiative, requesting meetings with an agenda to find out how robust the business’s employment tax procedures are.

On the day of the visit they will expect to interview representatives from various departments including HR, Reward, Mobility, Fleet, Payroll, Finance and Tax.

Prior to the visit they will expect to be forwarded copies of a wide range of your internal policies relating to your employment tax procedures e.g.: -

  • Expenses and details of the process maps that support their audit
  • Benefits, any salary sacrifice communications and the process maps governing P11D completion
  • Redundancy, relocation and termination policies
  • Incentive arrangements, bonus and share plans and the processes governing tax deductions
  • International assignments and the processes for tracking short term business visitors

In addition HMRC will review the arrangements around the engagement of workers including the processes around the engagement of self-employed consultants and workers generally.

Meeting outcomes

HMRC will be looking for evidence where employers have poor controls in place or may not be interpreting complicated employment tax legislation correctly. In line with Senior Accounting Officer legislation, HMRC expect to see good Governance procedures with documented processes in place including methodologies for testing what happens in practice.

The resource that HMRC are putting into this initiative indicates a renewed level of scrutiny and vigour in this area that will inevitably lead to greater employer compliance yields.

What you should be doing now

Employers should not underestimate the amount of time that can be involved in responding to HMRC’s “Know Your Customer” initiative. It is important that people working in payroll and benefits take the time now to prepare for these meetings.

Companies should be reviewing all of their existing policies and procedures governing the above. 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 understated. Employers should also take this opportunity to ensure that their processes are well documented and ensure the correct tax treatment is routinely applied and that there is a robust methodology for testing what actually happens in practice.

Internal meetings should also be held with other relevant personnel to ensure there is a good understanding of the tax rules across all departments, as these people will also be interviewed on the day of the “Know your Customer” meeting.

What if you have been doing something wrong?

As a part of these pre-meeting inspections you may discover that you have been doing something wrong. In these circumstances it is always wise to make a full disclosure to HMRC of the circumstances in which errors may have arisen and the amounts involved.

There is currently some doubt as to the penalty position surrounding such disclosures. HMRC are currently stating that any disclosures made as a result of the initial “Know your Customer” letter are prompted disclosures and they will seek to impose penalties to any underpayments of tax & NIC.

However for VAT purposes any disclosures made prior to a visit are deemed to be unprompted so no penalty provisions apply to them.

Representations have been made via HMRC’s Benefits and Expenses sub-committee that there should be consistency across all HMRC departments.

How emTax can help

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.


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