HMRC’s Employer Compliance officers undertake many thousands of PAYE inspections in any 12 month period. Although HMRC will state that the main purpose of the review is to police the system the main reason is to bring additional money into the Exchequer.
Such reviews tend to highlight the same types of errors, whatever the trade of the business or organisation may be.
So what are the top 10 areas that provide HMRC with the most yield and how can employers ensure that they are fully compliant should HMRC knock on the door?
1) Employment Status
This affects workers engaged on a self-employed basis providing labour only.
HMRC look at the terms of engagement and if they deem that the worker was engaged in terms that are similar to or exactly the same as employees, HMRC will calculate the PAYE Tax and National Insurance Contributions that should have been taxed as an employee.
What this means for you …
Many employers automatically assume that because they have an invoice from the worker that this protects them from a status review. This could not be further from the truth. Undertake status reviews now, don’t wait for HMRC
2) Off –Payroll Intermediaries
This currently applies to the public sector, however from 6 April 2020 will also affect the private sector and is employment status, in a different guise.
Historically a director running his or her own company as the only director was required to ascertain whether they would have been an employee of the engaging company, but for the protection of their own Limited Company.
What this means for you …
The responsibility now lies with the engager to check the ‘employment status’. If the engager gets this wrong, they will be responsible for the payment of the Tax and NIC to HMRC. Undertake reviews on off-payroll workers before HMRC do so. If an engaging company have gone through the correct processes but in HMRC eyes have arrived at the incorrect outcome, the company would not be penalised by HMRC.
3) Termination payments
Despite the £30,000 exemption being around for many years, there is much mis-understanding of the tax free rules and therefore a very lucrative area for HMRC.
What this means for you …
6 April 2018 also brought about a change of legislation affecting Pay in Lieu of Notice (PILONs). All PILON’s are now chargeable to Income Tax and National Insurance whether they are contractual or not
4) Personal Mobile Phone Allowances
Many employers provide monthly round sum allowances to employees to cover costs incurred by those employees using their personal mobile telephones for business purposes. However the full allowance is considered to be income and must be processed through the payroll.
What this means for you …
HMRC will only allowance actual calls that can be identified as business. The issue with a mobile telephone contract is it is personal to the employee. Most contracts cover lines rental, internet access, all calls and all texts. There is no additional cost incurred by the employee in using the telephone for business related purposes. An employer provided mobile phone, for business and personal use, has no tax consequences whatsoever.
5) Company Vans
A benefit in kind arises if a van is made available for the private use of a company van. For tax purposes, private use of a van does not include home to work travel.
What this means for you …
It is not sufficient for an employer to simply state that the only private use is home to work. There must be documentary evidence in the form of mileage logs or trackers. Where there is no evidence, HMRC will charge a full van and van fuel benefit.
6) Company Car Fuel
The increased tax charge on company cars and fuel over the last few years has resulted in the provision of fuel being withdrawn, a car benefit, only, is declared on form P11D.
What this means for you …
This very much attracts HMRC’s attention because a fuel benefit is chargeable if £1 is fuel is provided to an employee for private use. Fuel benefit is an all or nothing charge.
7) Casual Employees
With the advent of Real Time Information PAYE reporting, the use of casual employees has diminished.
What this means for you …
If there is a PAYE scheme in operation, casual employees must be reported through the payroll to HMRC. Failure to do so will result in HMRC charging the PAYE that should have been deducted.
8) Round sum or un-receipted expenses
Employers can reimburse expenses incurred by employees that have been incurred wholly, exclusively and necessarily in the performance of the duties of employment.
What this means for you …
As the payments are made without deduction, HMRC pay particular attention to the payments to verify that they meet the tax free criteria. If there are any short comings in the information held by the employer, HMRC which charge PAYE ad NIC on the payments.
9) Staff function
HMRC will not charge Income Tax on an annual function (such as Christmas party) if all employees are invited, whether they attend or not, and the cost per head does not exceed £150.
What this means for you …
It is a common mis-conception that only amounts over £150 are chargeable. This is not correct. If the amount exceeds £150, if only by a few pence, HMRC will charge Income Tax and NIC on the full amount of the function.
10) Company credit card
Many employers provide directors and selected employees with a credit card to cover business related expenditure. A thorough review of the statements should be undertaken to ensure that all expenditure is wholly business related.
What this means for you …
If personal expenditure is paid for by the company and the employee or director does not reimburse the cost, or the amount is not credited to the Directors Loan Account, HMRC will charge PAYE and NIC and undertake a full and detailed review of all expenditure.
Much food for thought! For more details or information on HMRC enquiries contact Paul Chappell on 03331 123456.
