What is the background?
It has been over 100 days since the Labour Government won the general election and the wait for Rachel Reeves’ Budget as Chancellor is almost over. There has been much speculation on what measures will be introduced in the Budget to fill the perceived “black hole” left in the public purse.
Although Labour appeared to rule out an increase in income tax and national insurance rates in their election campaign, recent announcements by Ministers have attempted to clarify that this did not apply to Employer NICs. It appears likely that employers will be impacted by Labour’s quest to raise additional funding.
What is the issue?
Although the content of the Budget is not known, it appears that the Government will be enforcing compliance more rigorously to reduce the perceived “tax gap” of approximately £40billion in all areas. As the largest proportion of tax is in employment taxes, it is not a surprise that HMRC recently announced that 5,000 additional compliance employees are being recruited to close the “tax gap” and raise more money.
As HMRC has recently provided what they consider to be acceptable evidence of good compliance in reclaiming expenses as part of their Employer Bulletin, they have given advance warning of what they expect from employers.
What do employers need to consider?
We have already seen a significant increase in employment tax compliance reviews being undertaken by HMRC and so it is likely that employers will see more activity from HMRC. It is also worth bearing in mind that HMRC’s approach for carrying out these reviews has developed over time and is not limited to onsite audits as was the case previously.
Their most recent methodology will often begin with an initial letter followed by a phone call to clarify any documentation provided. As the information and questions asked are very wide ranging, it is possible for the employer to inadvertently provide more details than are needed, leading to a “fishing expedition” by HMRC which can lead to additional issues being identified.
Employers should prepare for any potential review by considering the policies and governance in place for all key areas of employment taxes such as IR35, expenses and benefits reporting and payroll processing. The processes should be tested periodically and supported by relevant documentation and policies to demonstrate compliance.
How can UNW help?
To manage any potential risk, UNW can carry out a HMRC style “mock” review. This is designed to identify any gaps and weaknesses in your compliance and provide you with an opportunity to take remedial action prior to HMRC intervention. Other benefits of our review include:
- It demonstrates a pro-active approach to risk management
- We work with you to mitigate any potential exposures and achieve the best outcome possible if there is a liability
- Lower penalties are applicable to any liabilities settled in advance of a HMRC review
- The findings can be used to facilitate discussions with senior management and implement process/policy changes
- We adopt a flexible approach and can focus on key risk areas only, for example, IR35, CIS, company cars etc. to manage costs
Alternatively, if HMRC have already commenced a review, we can work with you to identify any issues so they can be addressed accordingly when responding to HMRC. This increases the chances of concluding the review as quickly as possible and mitigating any exposure to liabilities.
UNW has extensive experience in dealing with HMRC reviews (including an ex-HMRC officer) and we would be pleased to speak to you on any aspects of the above.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
