Employer Compliance Reviews (formerly called PAYE Investigations)
HMRC’s Compliance checks into PAYE and NIC are sometimes called an ‘Employer Compliance Review’ since these checks deal specifically with confirming that employers are meeting obligations to employers and subcontractors.
HMRC’s compliance investigations surrounding pay as you earn tax cover:
- Employee Income Tax deductions
- Class 1 and 1B National Insurance
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
- Apprenticeship Levy payments (starting from April 2017)
What’s the Process?
Usually, it’s the HMRC supercomputer ‘Connect’ which flags an inconsistency of some kind or places a business in a risk category worthy of further investigation. Compliance checks for PAYE also happen as standard in businesses of a certain size, roughly every six years, although this can be more frequent where errors have been found in the past.
In both cases, HMRC will send out a Compliance Check letter, before visiting the business premises to both speak with key staff members, and review any relevant records.
The letter itself with state clearly what records they would like available, giving you time to prepare. These will be things like:
- Payroll records
- Staff Rewards
- Expense claims
- Cashbook and petty cash book
- Employment Contracts
- Whether goods and services have been provided below market value
- IR35 policy and practice
It’s advisable to have professional representation (such as your accountant) present at these meetings. He/she will be able to respond accurately and dispassionately to any probing remarks with HMRC.
Potential Triggers for Checking PAYE Compliance
- Late return of End of Year Expenses and Benefits (Form P11D)
- Returning factually incorrect forms of any kind
- Where HMRC spots a pattern of non-compliance of some kind in related businesses
While HMRC does recognise that human error is a normal part of business practice, HMRC Compliance checks are looking for more systematic evidence of non-compliance.
The visiting officer will be looking for things such as:
- Accuracy of PAYE calculations
- Whether you’ve used the right employee codes
- That you’ve adhered to NIC Regulations
- Have there been any cash payments where PAYE has not been paid?
- Have you confirmed to the statutory rules for dealing with subcontractors?
- Have the records been reconciled with the Employers Annual Return (P35)
- When filling in the End-of-year expenses and benefits form (P11D or P9D) have expense payments and employee benefits been correctly disclosed?
What Happens if HMRC Finds Areas of Non-Compliance?
The inspecting officer will inform you right away if he/she has found anything of concern. Usually, they attempt to reach an agreement regarding potential taxes owed there and then – another reason to have your tax advisor present at the meeting, since they may have more experience dealing with HMRC. It is your right to challenge these findings if you disagree with them, as well as to request a formal explanation of the figures.
HMRC will usually only seek penalties if they feel the discrepancy has been deliberate, or deliberate and concealed.
If you have substantial arrears, penalties or surcharges and you cannot pay them when HMRC want this can have serious consequences. Equally, if you have a compliance visit and you are concerned. We are happy to advise or negotiate a settlement. For help call 0800 074 6757.