Don’t get spooked by HMRC’s Employer Compliance Reviews this Halloween!
HMRC inspections can give even the bravest businesses a fright! Be sure to regularly review your employment policies and stay one step ahead.
When did you last review the tax efficiency and compliance of your employment policies?
Your employees are an important part of your business so looking after them is critical to long-term success. There are a variety of ways to reward your staff, such as:
- Wages and salaries
- Performance related pay
- Share schemes and options
- Salary sacrifice
- Benefits in kind
They also allow you to make the most of tax saving opportunities available. However, when did you last review your policies to check you are properly implementing them? The minefield of PAYE and employment policies offers a great opportunity for HMRC to conduct Employer Compliance Reviews.
Employer Compliance Reviews (ECRs), often referred to as PAYE inspections, are the most common form of HMRC enquiry. They are carried out to ensure employers are meeting all of their employment obligations in regards to tax, PAYE and NIC, and HMRC visits are becoming more commonplace. It is worth all employers being aware of the areas that tend to come under the spotlight during a review.
The most common areas HMRC will look at when they conduct an ECR are:
HMRC view this as a high risk area because claims are often fraught with mistakes and inflated claims.
Typically HMRC will ask to see receipted expense forms to check that all claims have been authorised. They may also request mileage logs to support any claims made. If the appropriate support isn’t available HMRC may look to tax the payments made as additional income rather than the reimbursement of expenses.
Salary sacrifice schemes
Reducing tax liabilities with salary sacrifice is a popular way for many employees to access a variety of qualifying goods and services – from childcare to family holidays. It’s also becoming increasingly common for companies to offer their employees a variety of benefits under a sacrifice scheme. However, the scheme must be properly documented, especially to help achieve the tax benefits for your company.
This has been identified as an avoidance area where there is significant risk of abuse of PAYE. The issue is the requirement to deduct tax and NICs from self employed workers, particularly if HMRC successfully challenge the individuals are classified as employees.
There is a commonly held belief that termination payments of up to £30,000 are tax free – unfortunately this is not so. Furthermore, HMRC are proposing stricter controls on employment termination payments from April 2018.
What happens during an ECR?
If your company is targeted with an ECR, HMRC will normally contact you by telephone and look to arrange a meeting at your premises with the individuals responsible for finance and payroll matters. Once a meeting is confirmed, there will normally be a request to review specific records.
During this visit, they will be looking to identify whether there are adequate controls within the business. There will be particular emphasis on the common problem areas mentioned above. In addition, other aspects of PAYE compliance could be reviewed. This could include your administrative procedures for new employees and RTI compliance.
Most reviews initially involve looking at records for a 12 month period. If issues are identified, the review period will be extended. It’s recommended to have professional representation during any meetings with HMRC.
How can we help?
Carpenter Box offer a pre-emptive five-step Employee Health Check Service to help employers identify tax planning opportunities and risks. Our programme provides peace of mind that your business is compliant and ensures you are making the most of the tax savings available. We can also advise on ways to reduce the risk of non-compliance. In most ECRs, the errors that cause additional tax or liabilities could have been avoided had they been identified earlier.
To learn more and discuss how our Employment Health Check Service would be of benefit to you, please contact our Tax Service Team or call 01903 234094.