Each year HM Revenue & Customs carries out approximately 30,000 reviews of employers to check the operation of PAYE and National Insurance. On average each enquiry results in a financial settlement of approximately £10,000, before considering the additional costs in time, inconvenience and professional fees incurred by employers. More Employer Compliance reviews are carried out by HMRC than any other form of direct tax enquiry, so there is an increased risk of this happening to your business.

These days it is rare for HMRC to carry out a truly random enquiry. Most enquiries will have a specific reason which has triggered the review, but HMRC are under no obligation to disclose this. It could be an error on a P35, an apparent omission on a P11D, a review of the business accounts or personal tax returns, or other information which has been obtained.
Many businesses underestimate the scale and scope of an Employer Compliance review. Typically this will cover areas such as:

• Payroll and the operation of PAYE and National Insurance
• Expenses and reimbursement procedures
• Statutory payments such as sick pay, paternity and maternity pay
• One-off issues such as termination or redundancy payments
• Expatriate and inpatriate workers
• Benefits in kind and non-cash remuneration
• Construction Industry Scheme
• Employment Status
• IR35
• National Minimum Wage

At WMT Chartered Accountants we have specialist advice and support available to businesses both in advance of a review, attendance at reviews, and managing enquiries which may follow as a result of a review. Our experts include former Inland Revenue/HMRC Inspectors who have previously conducted enquiries, so we can offer you the practical advice and support that you need to allow you to concentrate of running your business.

What happens during an Employer Compliance review?

Unlike other types of direct tax enquiries, HMRC will usually wish to conduct the review at your business premises, although you are under no obligation to agree to this and can instead arrange for the review to take place elsewhere instead. Meetings will typically be attended by two Inspectors, which can sometimes feel intimidating although it is often done simply to ensure the review is quickly completed. Typically a review begins with a lengthy interview with the person(s) who deal with the business finances and payroll, and is designed in part for HMRC to understand more about how your business operates and partly so that the Inspector can assess the controls and checks that you have in place. The Inspector is looking for areas of weakness and potential failure in the systems you have in place; these can include things such as:

• No proper procedure when taking on new employees
• Record-keeping if cash is drawn to pay wagesIf the business deals in cash, controls over tills
• Expenses procedure
• How expenditure by Directors is monitored and recorded
• Undeclared benefits in kind
• Are pay rates in the records realistic
• Omissions from payroll such as bonuses and overtime
• Self employed workers

Once the interview stage is completed the Inspector will move on to examine a sample of your business records. This will usually be from a period within the last 12 months. The Inspector may ask for copies of your payroll (either physically or on a computer disc) so that the checks may be undertaken later back at their office; this is usual and should not pose a problem.
It should be remembered that an Employer Compliance review is limited in scope. The Inspector should not be discussing the business accounts, personal tax returns or matters which have no bearing on wages or benefits, such as sales.
At the end of the record review the Inspector will normally conclude by asking a series of questions regarding any contentious or unresolved issues. Care should be taken at this about answering questions without first seeking professional advice; once an answer has been given (even in good faith) it often difficult to change later if the answer was based on poor recollection, misunderstanding, or a mistake. A letter summarising the outstanding points, together with copies of a note of any discussions had, should be provided by HMRC shortly after the meeting. As with all Notes of Meeting these do not have to be signed and returned as an accurate record, but any obvious omissions or discrepancies should be pointed out in writing.

It is crucial the Employer Compliance Reviews are properly managed from the outset. Regardless of whether your business has been notified of a Review, or is in the middle of an enquiry, we can help. For a no-commitment discussion please contact Peter Davies on 01727 838255.