HMRC compliance activity increases

HMRC continues to increase its compliance activity by introducing further new approaches to checking employer compliance. Overall, following these changes in its approach, HMRC’s compliance yield has increased by over 10% in 2022/23 (to £34bn from £30.8bn in 2021/22).  

Whether HMRC reviews cover general pay as you earn (PAYE) compliance, national minimum wage (NMW) or off-payroll working, we are seeing the same tactics being employed. With the introduction of nudge letters and desk top reviews, HMRC is able to target a wider range of employers, encourage self-disclosure and subsequently identify where full reviews are required, to identify errors and recover underpayments.  

Business risk reviews 

The business risk review plus (BRR+) process is crucial in HMRC’s assessment and engagement with large or complex businesses regarding their tax compliance risk.  

BRR+ is used to evaluate where a business stands on the compliance risk spectrum (low, moderate, moderate-high and high). 

Several areas, which are considered important by HMRC when determining the risk ratings, will be reviewed. These include the procedures and controls adopted by the employer to ensure compliance with senior accounting officer (SAO) and corporate criminal offence provisions and how they are used in practice.  

There are clear advantages associated with employers maintaining a low-risk status, including fewer HMRC interventions.  

Off-payroll working reviews 

HMRC has recently issued further guidance to help businesses and intermediaries comply with the off-payroll working rules. Alongside this, it has substantially increased the number of reviews of medium-sized and large businesses, so it is important that such businesses are familiar with the new guidelines and are comfortable their controls and procedures are in line with HMRC’s expectations.

HMRC has also updated its check your employment status tool (CEST). Whilst the CEST still receives a lot of criticism it has been used around 1.8 million times by those seeking to comply with their obligation to undertake status determinations since September 2021, according to official statistics.

Finally, the new provisions regarding the offset of tax paid as a result of incorrect status determinations under the off-payroll working rules apply from 6 April 2024. These provisions allow for the offset against income tax and National Insurance contributions (NICs) liabilities assessed under PAYE which arise as a result of an error in operating the off-payroll working rules, of income tax and NICs already paid by the intermediary or worker on the same monies in respect of payments made from 6 April 2017 by public sector bodies, and from 6 April 2021 by non-public sector medium and large sized businesses.

National Minimum Wage

From 1 April 2024, the NMW for those aged 21 and over rose to £11.44 per hour, presenting challenges for many businesses and organisations. The Department for Business and Trade recently released its latest list, naming over 500 employers that failed to pay the NMW in previous periods to over 172,000 workers, amounting to almost£16m in underpaid wages. 

The NMW is currently high on the compliance agenda, with HMRC continuing to take a targeted approach to enforcement, focusing on geographic areas and repeat visits to previous defaulters, as well as specific business sectors such as those providing accommodation to their workers. HMRC has also made a commitment to investigate all complaints made through the Advisory, Conciliation and Arbitration Service (ACAS) helpline, and uses letters, social media and text messaging to target employers and those whose pay may have fallen short of the NMW.

HMRC can pursue NMW underpayments for a period of six years for both current and former workers, charge penalties of up to 200% and publish the names of non-compliant employers, thereby causing reputational damage to them.

Conclusions

Employers should not take HMRC compliance visits and/or nudge letters lightly, as the financial and reputational consequences are potentially significant. 

To manage such interactions with HMRC effectively:

• don’t ignore any HMRC contact and don’t panic - manage HMRC’s expectations if you cannot provide information within by deadline they suggest; 
• consider what support you need to help you internally and, if necessary, from an external adviser;
• don’t forget that if you do know you have an issue it is better to raise it and make a voluntary disclosure before HMRC undertakes a review; and 
• if asked a question you don’t know the answer to, agree to go away and check – no one is expected to know everything, and it is much better to answer correctly later than to give the wrong answer.

For more information, please get in touch with Susan Ball or your usual RSM contact.