Tax advice: HMRC is scrutinising your systems

A business' procedures around PAYE/NIC compliance have always been important, especially when under scrutiny from HM Revenue & Customs (HMRC).

Having recently reorganised, HMRC is placing more emphasis on Employer Compliance in respect of PAYE/NIC, and it will come as no surprise that HMRC has become more active in this respect.

Hugh Benham, senior tax manager at Grant Thornton, says: “While most employers will have relaxed after dealing with year end P35/P11D filing obligations, this is where HMRC often look to identify errors and additional PAYE revenues that have not been accounted for correctly.

Benham adds: “Consequently, robust systems and procedures are critical to enable 'risk' to be managed in a business, and the main reason why HMRC is focusing on Employer Compliance is that it can result in significant PAYE liabilities for businesses.

“This is particularly true as HMRC has also introduced draft 'Disguised Remuneration' legislation which is designed to create an upfront PAYE tax charge on many remuneration planning arrangements that businesses have successfully used in the past to reward it's employees, including earmarking of funds for employees and the use of loans that were provided through Employee Benefit Trusts.”

The legislation, although draft, actually came into effect from April 6, 2011, with anti-forestalling rules applying to any arrangements that were entered into on or after December 9, 2010, and represents another area of attack for HMRC to try and increase its tax share.

As a result, HMRC are concentrating on 'hot topics' such as:
•Challenges to an employee's normal place of work
•Use of Employee Benefit Trusts/other third party arrangements to provide rewards
•The construction industry scheme generally including retaining gross payment status
•Employment status, including non-executive directors
•International travel for employees
•Termination and redundancy payments
•Travel and subsistence expense payments

With this type of challenge from HMRC, having an up to date P11D dispensation, a robust and easy to understand expense policy and a clear and simple expense claim form process are the start to reducing the risk of PAYE/NIC liabilities arising.

Benham concludes: “The most sensible way to avoid an exposure from an HMRC PAYE/NIC review is to undertake a PAYE health check in advance of HMRC contacting you to announce a planned visit.”

If need help with an HMRC audit contact Hugh Benham at Grant Thornton on 023-8038-1126.