Although the majority of HMRC staff are working from home, the department is under intense pressure to increase the number of enquires it carries out. The pandemic and related support measures have required epic amounts of government spending to keep the economy afloat, with reduced economic activity having a detrimental effect on the amount of tax collected.
As the economy begins to bounce back, the Government is keen to claw back some of the money it has paid out, particularly from those perceived to have abused COVID-19 support measures provided over the last 18 months or so..
Which common areas are being targeted?
HMRC recently set up a Taxpayer Protection Taskforce staffed with over 1,200 tax investigators, tasked with investigating and potentially prosecuting serious cases of tax avoidance, especially those related to COVID-19 support schemes.
In addition, another area likely to be targeted by HMRC is PAYE/NIC non-compliance. This can be a real danger area - there are over 1,000 different rules relating to the operation of PAYE, so it can be easy to get something wrong. Not only can this lead to further tax and related penalties, but it may also lead to HMRC starting a full enquiry into the accounts of the business.
What could we be doing to prepare?
All tax advisors should be preparing themselves and their clients for an influx of Employer Compliance Reviews (ECRs) over the coming months. This should come as no surprise considering that almost 45% of tax receipts for 2018/19 (the last meaningful year for comparison purposes) came from income tax and national insurance contributions.
What challenges could HMRC experience with ECRs?
One problem for HMRC will be how they manage ECRs going forward, with tax inspectors preferring to interview an employer at their business premises. Although it’s safe to say that some in-person ECR visits will take place, HMRC will need other tools to gather the information required to undertake a full and thorough review of an organisation’s payroll compliance.
HMRC already review and assess information sent to them such as monthly payroll/RTI submissions, P11ds, VAT and corporation tax returns. However, this information is usually prepared by the taxpayer and rarely provides HMRC with the “ammunition” required to effectively challenge any incorrect claims, expenses and benefits.
During an onsite inspection, an inspector would be able to review other source records such as timesheets, expense claims and actual receipts (if available). Importantly, the inspector would also have the opportunity to interview the staff responsible for managing the payroll process and the authorisation of expense claims.
What is the Employer Compliance Questionnaire?
To assist the enquiry process in these semi-remote working times, HMRC have taken to issuing a lengthy and detailed Employer Compliance Questionnaire in lieu of in-person visits.
This questionnaire is full of traps for the unwary and, in our opinion, should only be completed by someone experienced in handling employment tax and/or PAYE matters. HMRC usually require the form to be completed and returned to them within 30 days. It includes questions into the following areas:
- The business – including its trade and location of main activities
- The directors – including names, roles, responsibilities and how they are paid (salary/dividends)
- Employees – including number, locations, full and part-time status
- Payroll procedures – including key personnel, software used, departments, authorisation protocols etc
- Off-payroll payments to directors, non-executives, consultants and personal service companies
- Termination and redundancy payments made in the last 12 months
- COVID-19 related grants and incentives claimed
- Expenses – including checking procedures, travel, entertaining, home working etc.
- Benefits in kind – including cars, vans, phones, entertaining etc.
- Loans and director loan accounts – including names and outstanding balances
- Share and other award schemes used in the last 12 months
How can we help?
At Lubbock Fine, we have a team of tax specialists who can advise and support on employment tax matters and HMRC enquiries. If you’d like to discuss any of the matters above, please get in touch with our Tax Director Graham Caddock (firstname.lastname@example.org) or your usual Lubbock Fine contact.