HMRC's new approach to 'employer duty' compliance

HMRC has introduced new ways of working when undertaking reviews of employers’ records. Such reviews are now increasingly referred to as ‘employer duty compliance checks’. If you are selected for such a review, and are asked to complete an HMRC questionnaire, this must be handled carefully.

Background

In a previous article, we looked at how employers can best prepare for an HMRC employer duty compliance check and we highlighted that, when an employer is chosen by HMRC for such a review, HMRC is now regularly using detailed questionnaires to gather information and identify risk areas.

Since July we have seen a notable increase in the use of these questionnaires by HMRC, who now appears to be moving away from its previous approach of visiting an employer and carrying out an interview and review of records on the employer’s premises.

HMRC’s preferred approach now seems to be to make initial contact by phone or email, and then issue an opening letter which encloses supporting factsheets and an ‘employer compliance questionnaire’ which is required to be completed and returned to HMRC by a date set out in the opening letter. The opening letter often suggests a follow-up telephone interview with a HMRC specialist and a review of documentation, which is performed by HMRC on its premises. It is possible therefore that a new employer duty compliance check can take place without HMRC visiting an employer’s premises at all.

What should you do if you are selected and asked to complete an employer compliance questionnaire?

While this shift in HMRC’s approach may be welcome news to many employers, these checks should not be taken any less seriously than previously, and the utmost care must be taken when dealing with the review and completing the employer compliance questionnaire. 

If you are selected for an employer duty compliance check, one of the first steps will be to complete the employer compliance questionnaire. Our key recommendations for completing the questionnaire are as follows.

1. Be aware of the deadline for returning the questionnaire

A typical employer compliance questionnaire is almost twenty pages long and includes a significant number of questions. We are regularly seeing HMRC ask for the questionnaire to be returned in a relatively short time frame, often within two to three weeks from the date of the opening letter.

Be realistic about, and do not underestimate, how long it can take to complete the questionnaire, and if you cannot meet the HMRC deadline for responding, ensure that you agree an extension with HMRC in good time. 

If liabilities are ultimately payable by an employer as a result of such a review, HMRC may charge penalties and returning information on a timely basis can help to mitigate such penalties. 

2. Make time to consider and complete the questionnaire carefully and as far in advance of the deadline as possible 

The employer compliance questionnaire covers a broad variety of employer related tax matters including, but not limited to: payroll operation; expenses and benefits; off-payroll workers; overseas employees; and share-related earnings. It is therefore possible that input will be required from the employer’s payroll, finance and HR teams to complete the questionnaire accurately, making the process of completing it more challenging.

The questions and requests for information within the employer compliance questionnaire are often confusing and open to interpretation, and require careful consideration. Providing clear, appropriate and accurate information is key, but employers must be careful not to provide unnecessary or unclear information which could invite avoidable follow-up queries from HMRC. Striking the right balance is crucial.

3. Take advice

The employer compliance questionnaire effectively replaces the initial interview with the employer which HMRC would have undertaken at the beginning of an onsite review. In our experience many employers would have chosen not to have their advisers present at that initial interview because they felt it was unnecessary and they had concerns about how that might be perceived by HMRC. This new approach, however, gives employers the opportunity to have their advisers fully involved in the initial information gathering process of the employer duty compliance check.

If you are selected for such a check and are asked to complete the questionnaire, we recommend that you seek the assistance of an employment tax specialist who can guide you through the process and answer the questions accurately and effectively. 

RSM’s employment tax specialists have experience of dealing with these new HMRC checks and are already finding that accurate and careful consideration of the opening questionnaire can lead to the check being closed by HMRC without the need for a telephone interview or further correspondence. 

If you have any questions regarding the above, or if you have received a letter from HMRC advising you that you have been selected for such an HMRC check, please contact Lee Knight or David Williams-Richardson.