Employer Compliance Reviews and PAYE Inspections

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With years of experience in the industry, Pannu Tax can offer help and advice, for clients throughout the UK, with HMRC employer compliance reviews and PAYE inspections.

Over the last few years there has been a significant increase in the number of HMRC PAYE and Employer Compliance inspections. This increase is due partly to a recognition by senior HMRC officials that this area of the tax system had been neglected and, linked with this, a concern that there may be a significant amounts of tax at risk.

What is an employer compliance inspection or PAYE review?

An Employer Compliance or PAYE review usually involves at least one HMRC officer seeking to inspect your payroll and expenses records together with any benefits in kind you may provide to your employees. Usually the review is conducted by a HMRC Employer Compliance specialist who will seek to inspect the records on your premises.

Depending on the size of your business and the number of employees, the record review can last for several days. If you’ve received notification of a review it may because your business is in a targeted sector or one which HMRC believes may represent a higher risk of non-compliance. It could be because you have historically made errors in the payroll or reporting of benefits in kind. Some clients believe that because this is "only a PAYE review" they do not therefore need their advisor present and that if there are any issues discovered the tax at stake is likely to be minor.

While this may be the case for some businesses, experience shows that even a relatively minor issue can soon mount up to a potentially large exposure. This is because the officer will likely seek to extrapolate any issue across all relevant employees and then seek to use this figure to assume that the errors occurred for at least the last six years (and sometimes more). Our experience clearly demonstrates that doing some preparation in advance of the inspection helps to ensure that the process runs smoothly and is concluded with minimal disruption and cost. In the more joined up world in which HMRC now operates it is common for any issues discovered during an Employer Compliance review which could have an impact on another tax area (such as VAT or Corporation Tax) to be passed on to relevant officers and inspectors.

So, while it may be thought that the review is not significant given that it is “only relates to payroll matters” this can be the start of a wider fact finding exercise for HMRC into the tax affairs of your business more generally.

What typically happens in this type of review?
  1. You will usually receive notification of the review (either by phone or letter). Following formal notification and before any inspection of the records is undertaken, HMRC will usually want to meet with the owner/director of the business and/or anyone responsible for the payroll and the reporting of benefits in kind (on Form P111d/P9d).
  2. The purpose of this meeting is for HMRC to understand the systems in place and in so doing, assess whether there are any specific areas of risk or potential non-compliance with the rules. Any such areas will then be the point of focus when the officer starts to review the records. Given the importance of this first meeting (and recognising that the old adage of ‘first impressions, count…’ is relevant here) you should make sure that you or any of your colleagues or employees attending the meeting are properly briefed, have knowledge of any risk areas and the likely approach and questions from HMRC. If there is more than one officer attending it is good practice to confirm the other officers' role and purpose. This is just to ensure that the focus of the review is on payroll matters and not any other taxes.
  3. The officer will then want to inspect relevant records (usually within a pre agreed sample period) . These will include:
    • PAYE and National Insurance Contribution ("NIC") records and sample payroll reports;
    • Expenses claims, the underlying receipts and vouchers and any internal expenses manuals or procedures;
    • Any subcontractor records (this may include a discussion around how your business decides whether a worker is self-employed or employed);
    • Forms P11d/P9d and other records relating to benefits in kind provided to employees; • Petty cash records (to assess whether any cash payments made to employees should be subject to tax or NIC);
    • Records relating to any director loan accounts (to assess whether there are any potential unreported benefits in kind if the accounts are overdrawn).
    At the end of the record review you should try to understand from the officer whether there are any risks or issues discovered. This type of early engagement can allow you/your advisor to quickly deal with any potential misunderstandings before they become an issue in the mind of the officer and it also helps you to stay in control of the process by allowing you to have an impact on how matters proceed.
  4. If there are issues which are likely to result in additional tax/NIC payable (and a very high proportion of these reviews do result in further sums being paid to HMRC) then you should ensure that you/your advisor understand the basis (factual and technical) for the officers’ view and, where appropriate, be prepared to challenge it.
  5. If, following any technical debate or discussion with the officer, it is conceded that there are potential issues which give rise to additional tax/NIC it is vital at this stage to effectively engage with the officer around the potential liability. It is common practice for officers to use the sample period originally selected for review to extrapolate over a number of historic periods and the potential employee population. While this may produce a figure that easily estimates the potential liability for the officer, it can often be excessive. So ensuring that your advisor understands HMRCs powers to assess historic periods and when any issues first arose etc, is crucial.
  6. If there have been errors, it is likely that the officer will seek a financial penalty. While this may be correct, the penalty position should always be reviewed carefully and, where appropriate, challenged. In some cases, it may be possible to suspend any penalty. Your advisor should have a detailed knowledge of the penalty regime in order to ensure he/she can negotiate effectively and help you to achieve the best possible outcome.

How Can Pannu Tax Help?

You will be advised by former HMRC Employer Compliance officers who have a detailed understanding of how HMRC conducts PAYE/Employer Compliance reviews and extensive experience of helping businesses and their owners to manage and conclude these issues.

We can:

  • Undertake a review of your systems and records prior to any enquiry or review to ensure that there are no issues and/or highlight any potential risk areas;
  • Manage the review from start to finish, working closely with you and, usually, your accountant;
  • Act as a consultant to your accountant or be involved in leading discussions and final negotiations directly with HMRC.

At Pannu Tax you will be advised by some the UKs leading tax investigations and dispute specialists who have the practical experience and the technical knowledge required to provide you with the type of effective support you need.

By engaging with Pannu Tax you will have access to their extensive experience and in depth and up to date knowledge of HMRCs procedures, powers and processes (usually only found in the large global accountancy firms) but at an affordable price.

To get further information or for a free, confidential and no obligation discussion please contact us on 0800 246 5915, complete the contact form or email us direct at info@pannutax.co.uk.

Expertise & Experience

At Pannu Tax you will be advised by some the UK's leading tax investigations and dispute specialists who have the practical experience and the technical knowledge required to provide you with the type of effective support you need.

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How can we help?

For a free, confidential and no obligation discussion call us on 0800 246 5915 or email us direct at info@pannutax.co.uk

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