Over the last few months, it has become apparent that a number of employers are receiving letters from HMRC relating to a check on their employer records. The stated purpose of the visit is quite clear: it’s for HMRC to ensure that the employer is meeting their PAYE responsibilities.
A wider purpose?
For many employers this will be the first notification of such a visit for many years. In recent years, HMRC has not been over active in this area and employers might normally expect a visit every four to six years.
In the case of smaller employers, in the past it was common for the HMRC officer to just review the records for the previous tax year; however, we are seeing that HMRC increasingly wishes to review tax records for the previous three years. This is an interesting development, as it possible that it changes the nature of the visit from that of a check to ensure that the employer is complying with their obligations, to one where HMRC is seeking to identify areas where errors have been made and therefore recover underpaid taxes.
Normally these visits will take approximately a day, and in most cases there will be two officers from HMRC. They will wish to speak to someone who deals with payroll, expenses and benefits and human resources. In smaller employers this may be one person, but in larger employers it is likely this is at least three people. In these circumstances it is important that the employer is prepared, as any seemingly inconsistent or unclear information provided to HMRC in relation to a particular benefit or expense can lead to undue complications, with the inspection taking much longer than expected.
Employers may also note that the visit will include checks to ensure the employment status of workers has been correctly determined.
Employment status has become a high priority on HMRC’s agenda and is likely to be there for some time with the various recent high profile court cases and the impact of the soon to be published Taylor review on modern employment practices. HMRC has set up a new unit of specialist status inspectors who will be targeting larger employers, where accounts show that there are a considerable number of off-payroll workers. Recent experience of these status inspectors has shown that they will go into considerable detail in reviewing each engagement with consultants and freelancers, not only looking at the contracts and documentation but also seeking to fully understand the underlying relationship between the engager and the worker.
It is clear that HMRC has increased its activity in the employer compliance field and this is likely to continue for some time. It would be advisable that employers do not take these visits lightly, as it would appear that there may be a need to settle any underpaid tax and national insurance, plus penalties and interest at the end. In addition, employers that engage off-payroll workers should look closely at those arrangements, as experience has shown that the tax consequences of incorrect status can be costly.
In many cases, taking professional advice on receipt of such a letter from HMRC will enable you to reduce the duration of the inspection whilst minimising any potential liabilities.
For more information please get in touch with Graham Farquhar or your usual RSM contact.