Employer Compliance Reviews

If you are a business that has employees then at some point you will be subject to an Employer Compliance Review.  These used to be known as PAYE investigations and are carried out by HMRC to ensure that employers are meeting all of their tax and National Insurance obligations in relation to their employees.

At the review HMRC will check your payroll operation, but as this is now computerised the risk of errors is relatively small.  HMRC will therefore focus on other key risk areas where employers are more likely to have made mistakes or where their record keeping and procedures are not up to scratch.

In our experience these visits normally focus on the following areas:

• PAYE and NIC operation
• Treatment of payments to subcontractors
• Status of workers (employed vs self-employed)
• IR35 operation if applicable
• Reporting of benefits in kind, in particular:
• Motor vehicles
• Mileage claims
• Staff and business entertaining
• Salary sacrifice arrangements
• Subscriptions to clubs and gyms
• Insurance payments, such as Keyman or Shareholder Protection
• Share schemes
• Termination payments

Within each of these areas there are a number of potential pitfalls, which could be easily overlooked by an unwary employer.  For example a ‘pool car’ should not be used privately, normally be left at the employer’s premises overnight or in the nearby vicinity, not be used by one employee to the exclusion of others and have a detailed mileage records to demonstrate business use.

In addition most employers are aware that staff entertaining is exempt each year up to a maximum of £150 per head.  However employers must be aware that this limit includes VAT so the net amount could actually be as low as £125.  Furthermore the exemption technically only covers annual events such as a Christmas party or office away day.  If the £150 limit is breached then the employer can pick any number of annual events that fall within the maximum amount and treat these as exempt.  The remaining events would be reportable on form P11D unless the employer kindly decides to pay any tax and NIC arising via a PAYE Settlement Agreement.

The above information merely scratches the surface of Employer Compliance Reviews and the benefits in kind rules.  If you receive an Employer Compliance Review notification and you have subscribed to our tax fee protection service then we can attend these visits at no cost to you.  HMRC normally like to speak to the owner at the start of the meeting to obtain an understanding of the business, but after this you can get on with your work and we will answer further queries on your behalf.  Our expertise in this area should help to cut down on HMRC follow up letters and therefore ensure minimum disruption to your business.

If you want to make sure that your business is complying with current payroll and benefits legislation then please do not hesitate to get in touch with us.  We can carry out a review of your current procedures and advise on areas of risk and ways that you can reduce this before the HMRC letter arrives at your office.

Tax Investigation

Payroll