HMRC employer compliance activity
Are you confident that your organisation’s employment taxes would stand up to HMRC scrutiny?
We believe HMRC have significantly increased their programme of checking their records with employment taxes. This is unsurprising as a Public Accounts Committee report informs that HMRC recovers £18 in income tax/ National Insurance Contributions (NICs) for every £1 spent on compliance activities. This is in contrast to the reported £4 return for every £1 spent on the taskforce recovering Coronavirus Job Retention Scheme (CJRS) claim error or fraud.
The total tax gap (being the difference between the tax HMRC expects to collect and that actually paid) in 2020/21 was £32 billion, and Income Tax/NICs made up £12.7 billion (39%) of the gap. Therefore, it does not seem coincidental that we are seeing more HMRC employer records checks commencing.
What triggers a HMRC check of employer records?
HMRC is of course aware that employment taxes can cut across many functions within an organisation i.e. payroll, HR, finance and tax. Without robust controls and processes in place this can lead to irregularities arising with the organisation’s employment tax compliance.
HMRC may, therefore, look out for the following types of triggers when deciding whether to commence a check of records:
- Issues with payroll Real-Time Information (RTI) filings as HMRC has visibility over errors in real time.
- Frequent staff turnover, particularly in key employees and stakeholders.
- Engaging with off-payroll contractors.
- Organisations that have grown quickly as HMRC experience is that these often focus on growth meaning their controls and processes do not keep pace and become outdated.
What happens under a HMRC check of records?
If your organisation is notified by HMRC that it intends to undertake a check of its employer records, you should not ignore this; HMRC will not go away and you are already susceptible to HMRC’s penalty regime should errors be found.
Usually, HMRC will state the period in which records it would like to review. The check could be performed informally by way of a questionnaire and telephone call, or as we have seen more recently, an on-site visit.
If, in performing its check, HMRC discovers there has been an underpayment of income tax/NICs it can extend its check to cover the last six closed tax years where there has been careless or negligent behaviour.
Additionally, HMRC can charge a penalty of up to 30% on the amount of income tax/NICs recovered on top of late payment interest. If anything more nefarious is suspected, such as in cases involving fraud, HMRC can further extend the period or review and charge much higher penalties.
High-risk areas
When performing a check of records, the areas usually on HMRC’s radar include:
- Off Payroll Working / IR35 / employment status
- changes to working patterns e.g. travel and subsistence and working from home
- staff entertaining
- National Minimum Wage
- CJRS claims.
How can Crowe help?
At Crowe, our employment tax specialists, in conjunction with our Tax Resolutions team where appropriate, have represented many clients who have been notified of an HMRC check of records. By applying their deep understanding of tax legislation and practical experience, our specialists can achieve substantial savings by ensuring that HMRC only collects the income tax / NICs that are due and properly payable.
Our hands-on approach helps clients reduce the time constraints that a check of records places upon them and to meet HMRC deadlines as well as ensuring any penalty charged is mitigated as much as possible.
Additionally, our specialists can help clients undertake a self-initiated check of the employment taxes and voluntarily disclose any unpaid income tax/NICs to HMRC. This can result in fewer earlier years forming part of the disclosure and preferential treatment when HMRC considers the penalty position.
If you have received an HMRC check of records notice or have any concerns with regard to your employer compliance, please contact Glen Huxter or your usual Crowe contact.
