Employer Compliance Reviews (also known as PAYE investigations) are one of the most common forms of HMRC enquiry.
The purpose of an ECR is to ensure an organisation is meeting all of its payroll, minimum wage, National Insurance (NIC) and Construction Industry Scheme (CIS) obligations.
After a lull in compliance activity in the 2020/21 tax year to 5 April, we anticipate that HMRC will resume its compliance activities once the restrictions related to the pandemic begin to ease.
What is the background?
Pound for pound, an ECR represents one of the highest cost to yield ratios for HMRC in its regulatory work, demonstrated by the large sums that can often be generated by investigators. As the tax take in 2020/21 has been greatly reduced we expect that HMRC will be keen to collect as much tax and NIC as possible, with employers potentially generating much of the additional revenue.
What is the issue?
HMRC can carry out an ECR at any employer in the UK, with a review usually starting as a “light touch” and apparently “low risk” audit check. This can often lead to employers believing that it is such low risk that they do not need to involve their advisors.
However, caution is needed as HMRC’s Officers undertaking this work are specialists in this area and their “light touch” routine check is aimed at finding common errors so that they can expand their scope into the general accuracy of the employment tax position of a business as a whole.
In addition, for any mistake found, HMRC Officers would normally then expect to use that as the basis for the collection of back taxes for 4, 6 or even 20 years. As the amount of tax and NIC underpaid is often grossed up with financial penalties attached, the eventual liabilities for the employer can be significant.
What do employers need to consider?
An ECR will generally focus on a number of key areas:
- The general operation of PAYE and National Insurance;
- Expenses and employee reimbursement;
- Redundancy, notice payments and/or termination policies;
- Expatriate workers, secondees and interns;
- Benefits in kind and non-cash benefits, payment and remuneration;
- The Construction Industry Scheme (or CIS) – operation and returns; and
- Employment Status and IR35 (new rules)
In addition, we expect HMRC to increase its queries into the different versions of the Coronavirus Job Retention Schemes for claims made in 2020/21.
Employers need to make sure that their compliance is in order and that they consider their payments and procedures at least annually to ensure that they would not be subject to unpaid liabilities following an ECR.
How can UNW help?
UNW can support you in advance of any enquiry or review, advising on ways to reduce the risk of non-compliance. We can also limit the inconvenience and distraction of an ECR, allowing you to concentrate on running your business.
We can ensure that employers are compliant through:
- Proactively carrying out a full compliance “health check” in advance of any ECR;
- Reviewing specific areas of improvement within a business;
- Providing ad-hoc advice for areas where HMRC typically find errors; and
- Assisting employers in responding to HMRC from the beginning of an ECR through to settlement and negotiation of any penalties.
If you would like more information about this, or any other employment tax related matters, please do not hesitate to get in touch with Lee Muter, Employment Taxes Partner, at leemuter@unw.co.uk or Paul Tucker, Employment Taxes Senior Manager, at paultucker@unw.co.uk.
