FEATURE TOPIC
This issue, Jerome spoke to: ● Pauline Green ACIPP MBCS FMAAT, head of product compliance & programs, Intuit QuickBooks UK ● Julie Northover ChFCIPPdip, CIPP payroll compliance advisor and foundation degree tutor, IPP Education ● Simon Parsons MSc FCIPPdip MBCS, director UK compliance strategies, SD Worx ● Emma Watson MCIPPdip Assoc CIPD, payroll & HR manager, Payroll Pal Ltd.
What best practices would you recommend to an employer to check compliance? PG: Make sure you know what your software can and can’t do. Don’t make assumptions on its capabilities. You may have inherited a software system, so you need to become familiar with its capabilities. JN: Organisations should have a programme of strategies for ensuring payroll compliance and they should be far- reaching within the business and not just focus on the payroll department; it’s rarely a standalone function. Understanding and identifying what / where the potential risks are is the foundation to forming efficient strategies to counter those risks. The key areas for consideration generally fall into three categories: people, processes and systems. Firstly, suitably trained and motivated staff can be a huge contributor to effective compliance. Think about: l the roles, responsibilities and accountabilities of everyone involved in the payroll function should be evaluated l the appropriate skills, qualifications and knowledge required to perform the payroll functions should be measured against the roles and the people in those roles Secondly, processes should include: l understanding and documenting end-to- end payroll processes l submitting payroll information on time l identifying gaps in controls l monitoring and reviewing controls (use audit trails) l ensuring segregation of duties l maintaining accurate and secure data. Thirdly, systems must: l be constantly reviewed to identify potential weaknesses in software security l include mapping IT general controls over payroll systems and supporting infrastructure l involve evaluating and future-proofing system requirements to ensure they remain fit for purpose. SP: An annual review of payroll and HR records is important. Seek assurance that software and service has been updated with any relevant fiscal change, that calculations are up to date. However, calculations and software are only as good as the accuracy of the data being applied. A review of employee records and associated data is key to ensure accuracy, that starters and leavers are appropriately handled.
What areas in payroll are covered under an HM Revenue and Customs (HMRC) audit? Pauline Green: HMRC audits include investigating your payroll systems and process. While you may not be subject to a formal HMRC audit, it’s always good practice to carry out your own. You can do that yourself or via your auditors (depending on the size of your business). For your payroll software, some things to check would be which parts of the process are automated and which are manual. Consider: l how an employee tax code is updated l if national minimum wage (NMW) values are checked, for example, if the software gives warnings l how changes to the employee are received and entered into the payroll software l ensuring there is an audit trail tracking when and how changes were made, as well as who made them l if there are manual processes as well as automated, making sure you keep a paper trail as well as the computer audit. Also, if you have separate or integrated human resources (HR) systems, make sure you audit them as well. Ensure employee contracts and other details are up to date. Do you have all the necessary paperwork for starters, such as right-to-work checks? Has all the leaver information been updated correctly? In addition, you must be mindful of General Data Protection Regulations, such as ensuring you only keep relevant employee information for a clear business need. So, for HMRC purposes, you need to keep employee pay, tax and National Insurance contributions (NICs) records for three years. Check how long your software is storing data. Simon Parsons: Receiving a request for a pay as you earn (PAYE) audit can feel a little daunting. There are many reasons why an audit may be taking place. However, they can be just because it has been several years since the last and part of the regular round.
The primary areas of coverage relate to the PAYE records for tax and NI. Also, there may be a focus on some of the periphery areas of statutory payment and reclaim accuracy, the application of the Apprenticeship Levy and whether all grants and claims are accurate. The HMRC inspection can take some interest in expense policies, the operation of salary sacrifices and provision of benefits. NMW is often part of separate investigations from the rest of payroll records, although it has increasingly been an area of interest. Over the years we have seen several additional areas of interest in relation to directors’ records and loans, any disguised arrangements and a review of the Construction Industry Scheme and off-payroll workers under IR35. Also, areas of interest are termination payments, especially in relation to what has been taxed or not. What are the consequences to employers of non-compliance? PG: Fines and penalties are available to HMRC but also your employees may not have been paid correctly so you damage your relationship with them. You could lose good employees and struggle to replace them. Your reputation is harmed, especially if you fail the NMW checks and are named and shamed. A good payroll software will warn you if there are potential errors for NMW or changes required to NI. Julie Northover: Depending on the type of non-compliance, an organisation can risk financial penalties, reputational damage (externally and internally), an unhappy workforce (which can impact productivity), security breaches, employment tribunals, prosecution and even imprisonment. A single instance of non-compliance will inevitably result in further scrutiny in other areas of a business. SP: HMRC has significant powers in relation to inspection. If the employer doesn’t respond to a request for information or refuses a visit without a valid reason, then there is potential for fines and penalties. Where errors are discovered, then significant penalties can be applied along with interest charges for underpayments.
| Professional in Payroll, Pensions and Reward | November 2024 | Issue 105 34
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