Under the magnifying glass

17 January 2017

HMRC is changing the way it undertakes employer compliance checks, reports Tax Director, Alastair Kendrick. And he thinks tax advisers could be in for a busy year 2017 as a result of the new system. 

Over many years employers have become familiar withy the occasional visit by HMRC to undertake a compliance review, and have been living under the fear of the inspectors finding something wrong, leading to significant payment in back taxes, interest and penalties. We are now seeing a change in approach from HMRC.

It is clear that, with the introduction of Real Time Information, HMRC can keep a closer eye during the tax year on those employers and those contractors operating the Construction Industry Scheme (CIS). Therefore, if we do get an approach from HMRC to discuss payroll or CIS issues, we can be fairly confident there is something that has been spotted.

In this changing world we are seeing more targeted reviews relating to particular trades or particular aspects of compliance, for example, off-payroll workers. So instead of a full review of the compliance of an employer, there is a review of some aspect of their affairs.

Also, in addition HMRC is trying out a completely different approach to employer compliance, reviews. So instead of contacting the employer with a view to arranging to visit them and their records, they are sending out a detailed questionnaire that asks about all aspects of payroll and considers the expenses and benefits that are provided. Following the receipt of this questionnaire, HMRC arranges a conference call in which it explores the details further, asking more questions in attempt to discover if there are any compliance issues. At the end of this conference call HMRC will decide what additional information it may require to bring its review to a close and write requesting this information. From this, HMRC can determine the scale of any settlement they should be looking for from the employer. 

With the closure of so many HMRC offices around the country, clearly the above approach does have its merits for them but it is less personal for the employer and does appear to create a significant amount of work for them. One of the worrying aspects of this change in practice is that HMRC appears to have excluded the employer’s tax agent from the process. With the previous arrangement, the tax advisor for the employer would be told in writing of the employer would be told in writing of the employer compliance visit. Now, the letter appears to only go to the employer. In light of this, employers need to be in touch with their tax advisers and seek their guidance as to whether they need to be involved.

It is the case that with all the reorganisations that have occurred in HMRC over recent years we have not seen it, maintain the level of employer compliance reviews that occurred previously. It should be looking at all employers every six years but in my experience many employers I talk with cannot recall the last time they got a visit. If this new process means HMRC can target more employers, we can expect to see a lot of issues surfacing which historically would have been picked up on the HMRC review, and employers facing significant sums in back tax/NICs, interest and penalties.

In the light of this change of approach by HMRC, I anticipate a busy 2017 for employment tax advisors like myself. 

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