The changing world of employer compliance

28 November 2016

The world is changing and whilst many employers have not had an HMRC employer compliance review in recent years this is likely not to be the case going forward.  HMRC are now trying a new approach by instead of visiting you undertaking a review remotely by asking you to complete a questionnaire and then sit through a detailed conference call.  Be aware that not getting your employment tax compliance right can be costly.

We have over many years become familiar with the occasional visit by HMRC to undertake an employer compliance review and have been living under the fear of them finding something wrong which led to a significant payment in back taxes , interest and penalties.  We are now seeing the approach of HMRC is changing.

It is clear with the introduction of real time information that HMRC can keep a closer eye during the tax year on employers and those contractors operation the construction industry scheme.  Therefore if we do get an approach from HMRC to discuss payroll or construction industry scheme issues we can be concerned that there is something which they have spotted.

In this changing world we are seeing more targeted reviews over particular trades or considering particular aspects of compliance e.g. 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 are trying out a completely different approach to the employer compliance visit.  So instead of contacting the employer with a view to arranging to visit the employer and review their records they are sending out a detailed questionnaire which asks about all aspects of payroll and considers the expenses and benefits that are provided.  Following the receipt of this questionnaire then HMRC arrange a conference call in which they explore further the questionnaire with some more detailed questions in an attempt to discover if there are any potential compliance issues.  At the end of this conference call HMRC will decide what additional information they may require to bring their review to a close and write requesting this information.  Form this HMRC can determine the scale of any settlement that 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 appear to have excluded the tax agent of the employer from the process.  With the previous arrangement the tax adviser for 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 whether they need to be involved.

It is the case that with all the re-organisations that have occurred in HMRC over recent years we have not seen them maintain the level of employer compliance reviews that occurred previously.   They should be looking at all employers every 6 years but in my experience many employers I talk with cannot recall the last time they got a visit.  If this new process means that HMRC can target more employers we can expect to see a lot of issues which historically would have been picked up on the HMRC review now surfacing and employers facing significant sums in back tax/NIC, interest and penalties.  In light of this change of approach by HMRC I can anticipate a busy 2017 for employment tax advisers like myself.

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