Time for Review

05 August 2015

HMRC activity on employer compliance is likely to increase. Tax Director Alastair Kendrick recommends a health check of your systems to guard against any surprises in case you receive a knock at the door.

From what we heard in the run up to the general election, it seems inevitable that we can expect a real increase in compliance activity by HMRC. The government will need to generate significant funds, and employers who have not fully complied with their tax obligations will be an easy target. This will be a shock to those who have been doing their payroll and benefit reporting over a number of years without any HMRC interest.

It’s true that HMRC activity in employer compliance significantly reduced in recent years, with a big drop in the number of compliance visits. A lot of the resource was redeployed in the low- hanging fruit surrounding tax avoidance schemes. With significant numbers of the affected tax payers having settled their liabilities and the remainder caught by the recently introduced accelerated payment notices, these teams can now be moved back to their old jobs.

So it is important that you are prepared and understand what to do if HMRC selects you for review and what it will cover, who will be involved and when the visit will take place. You should also decide who in your company will be involved and whether you will need the help of your tax advisers.

There is often a misunderstanding of the scope of these reviews, with the perception that they are purely aimed at payroll- but with RTI this can largely be monitored without the need for a sit visit. The review therefore is aimed more at scrutiny of the main areas of employer taxation, which include:

  • National Minimum wage
  • Student loan repayments
  • P11D reporting
  • Construction Industry Scheme

The review is likely to look at accounting records of the employer – normally for the current tax payer- including purchase ledger, petty cash, payroll and cheque requisitions.

Given the increase possibility of a visit from HMRC, it is sensible to take steps to ensure you won’t be left with a tax exposure should you receive a knock on the door? It will be wise to either walk through the areas that would be considered at the time of review by HMRC or to get some third party to do this for you- your auditors for example.

“Employers who have not fully complied with their tax obligations will be an easy target.” 

If you do decide to take on such a health check, here are some key areas:

  • Review the payroll an check that you are in compliance with all the appropriate RTI procedures and that there are no errors or late payments of tax or National Insurance
  • Consider areas like the National Minimum Wage (NMW), student loan repayments and SSP/SMP
  • Are you making payments gross to workers who should be on the payroll?
  • Do you engage workers from an overseas entity (and therefore should be accounting for tax/National Insurance on payments you make from an overseas entity (and therefore should be accounting for tax/National Insurance on payments you make, following rules introduces in April 2014)?
  • Are you operating in the Construction Industry Scheme correctly (if required)?

Having gained comfort that your procedures and reporting seem in shape, you can relax. Clearly if your health check identifies some areas of concern, you need to consider taking tax advice.

Key Points:

  • Compliance visits from HMRC are likely to increase as the government looks to generate funds 
  • It’s important to prepare for review and understand the scope and scale of the process you’ll face if selected
  • Reviews are not aimed purely at payroll; they involve scrutiny of the main areas of employer taxation.

For further information on employer compliance please contact Alastair Kendrick, or your nearest MHA MacIntyre Hudson tax advisor.