All employers can at some point be subject to an HMRC ‘employer duties review’, and with HMRC’s increased activity in this area the likelihood of being selected for HMRC review is higher than ever.
As the rules around employment taxes become ever more complex and the burden of maintaining compliance increases, the risk of inaccuracies also goes up. Where reasonable care has not been exercised, HMRC can collect underpaid liabilities going back six tax years, together with penalties and interest charges. Even innocent mistakes can therefore be costly.
Employers do not, however, need to wait for an HMRC review before checking their employment tax compliance. An independent employment tax health check, undertaken by experienced employment tax specialists, can help to identify potential errors at the earliest opportunity and mitigate risks.
What is an employment tax health check?
It is an independent review of an employer’s employment tax position which can:
- check compliance with legislation and HMRC guidance;
- identify areas of non-compliance;
- facilitate a strategy for addressing errors for the past, and optimising compliance going forward; and
- highlight opportunities for cost savings and efficiencies.
The health check can be tailored closely to the employer’s specific circumstances and requirements. A one size fits all approach is certainly not recommended. The scope and nature of the health check might be affected by several factors including:
- the size of the workforce (including employees and off-payroll personnel);
- the time elapsed since the employer’s last HMRC employer duties review;
- the way in which the employer remunerates their workforce (including with non-cash benefits); and
- the existence of suspected risk areas which the employer has already identified.
As a minimum, the health check should always involve discussions with the employer’s key stakeholders (for example, representatives from finance, HR, and payroll teams) and a review of relevant documentation and records. It will usually include the delivery of a report setting out findings and recommendations. It can be a detailed health check or high-level one (or somewhere in between), depending on the employer’s preferences.
What areas can an employment tax health check look at?
This will depend on circumstances and requirements, but generally a risk-based approach should be applied, focusing on areas where errors commonly occur. These might include (but are not limited to) how an employer has dealt with:
- off-payroll personnel;
- new and amended PAYE codes;
- new and amended deductions from salary;
- lump-sum termination payments;
- share-related earnings and other employment related securities matters;
- staff entertainment and staff gifts;
- travel expenses (especially where an employer has multiple sites);
- optional remuneration arrangements and salary sacrifice;
- company vehicles;
- internationally mobile employees; and
- employee homeworking expenses and payments for use of telephones.
What are the advantages of undertaking an employment tax health check?
There are three key benefits of undertaking an employment tax health check.
1. It helps to identify and fix errors at the earliest opportunity, potentially reducing exposure to liabilities. The key benefit here is mitigating HMRC penalties where an error is discovered and then voluntarily disclosed to HMRC. A lower rate of penalty is generally applied where an employer voluntarily discloses an error to HMRC and, depending on the behaviour and circumstances giving rise to the error, it may be possible to secure a nil penalty through prompt disclosure.
2. It can help to highlight and introduce up to date best practice around employment tax compliance, streamlining processes, and reducing costs for the future. For example, the health check might identify that an employer expenses policy document should be issued or refreshed, or that more effective use of salary sacrifice and other exemptions could be used to manage ongoing costs.
3. It can ready a business for further review by other parties at a later stage, saving precious time, resources, and costs when such a review is required. This might be an employer duties review subsequently undertaken by HMRC, or a due diligence review undertaken by a prospective purchaser of a business or in anticipation of a possible sale.
RSM’s employment tax specialists have significant experiencing of undertaking employment tax health checks, and of helping employers maintain employment tax compliance in an increasingly and challenging environment. If you have any questions regarding the above, any concerns about being compliant, or would like to discuss RSM undertaking an employment tax health check of your organisation, please contact Lee Knight, David Williams-Richardson or Deborah-Parks Green.