COMPLIANCE
been made within the required period, the offence would have already occurred, and the focus must turn to how to mitigate the resulting exposure to penalties. There are three key matters to consider: Does the employer have a reasonable excuse? Where an employer has a reasonable excuse for failing to notify HMRC of its exposure to income tax within the notification period, and that failure was addressed within a reasonable timeframe, no failure to notify penalty is due. There may be several factors to consider in determining whether an employer has a reasonable excuse, including: ● the numerous updates and changes to HMRC’s guidance ● the evidence of care taken by the employer during the period ● any relevant commercial factors which applied during the notification period and beyond. Potential lost revenue In the absence of a reasonable excuse, the employer will face the imposition of a tax geared penalty, with the potential lost revenue (PLR) and the taxpayer behaviour giving rise to the error providing the basis upon which the penalty is calculated. Assuming the failure isn’t due to what’s, or what’s deemed to be, deliberate and concealed behaviour (details of which are explored below), the PLR is the income tax. It should be crystallised via disclosures made in the employer’s tax return, that remains unpaid: ● 12 months after the end of the relevant accounting period for companies, or ● as at 31 January following the tax year for other employers. Therefore, if the income tax is settled in full within 12 months of the accounting period end date by corporate employers, or by 31 January following the tax year for non-corporate employers, the penalty in such cases will be nil. Behaviour Where there’s no reasonable excuse, and the employer hasn’t paid the income tax liability in full by the required date, there’ll be a penalty exposure based on the PLR. The penalty percentage loading parameters that apply depending on the nature of taxpayer behaviour can be found on factsheet: http://ow.ly/nB7630sprZh.
The relevant behaviour is determined based on the employer’s conduct during the notification period, as opposed to the behaviour demonstrated when filing the tax return. If the failure to notify offence occurred due to non-deliberate behaviour, the penalty threshold applicable will be 0-30% (as opposed to 20-100% in cases of deliberate, or deliberate and concealed behaviour). Where the disclosure has been made on an unprompted basis, whether within or outside a tax return, the starting point for penalties will be mitigated by 10- 20% across the behavioural spectrum. To determine where on the relevant penalty range a specific employer’s offence falls, HMRC will consider the quality and accuracy of the disclosure made. Affording a reduction for telling, helping and giving, HMRC will determine the penalty loading based on the employer’s conduct during the disclosure process. Make sure CJRS records are retained for six years, with a clear audit trail While the above analysis sets out the failure to notify penalty for non-deliberate behaviour, there may, however, be a significant number of employers that are found to have acted deliberately. If an employer knew a claim was excessive or had become excessive due to a change in circumstances, but failed to notify HMRC within the 90-day notification period (or by 20 October 2020 if later) detailed above, the relevant legislation indicates the behaviour in those instances should be treated as deliberate and concealed. In those cases, employers not only face a higher penalty range as set out above, but the PLR is also calculated by reference to the total of the excessive claim that isn’t repaid at the end of the 90-day notification period (or by 20 October 2020, if later). It, therefore, cannot be reduced to nil by paying the income tax liability in full within 12 months of the accounting period end date. In most cases where the employer knew they’d overclaimed, but failed to notify HMRC by the notification date, a penalty will be due on the entirety of the overclaim. Notwithstanding the failure to notify
penalty position, penalties also need to be considered where incorrect tax returns have been submitted. Evidently, cases involving allegations of deliberate and concealed behaviour leave employers exposed to significant risk, not only to financial penalties but also criminal prosecution. In such cases, HMRC expects to see clients registered within HMRC’s contractual disclosure facility and the disclosure provided in full via that regime. Summary Considering HMRC is already investigating claims, employers should make sure CJRS records are retained for six years, with a clear audit trail. We would recommend this includes: ● ensuring key judgments are documented ● retaining copies of the relevant legislation and HMRC guidance at the time the basis of claims was considered, or external advice was taken, to back up claim workings ● ensuring all furlough workings for each pay period calculation, and the reference salary used to identify the minimum payments, are saved on file and easily accessible, should you be audited, along with details showing the payments made to employees ● keeping records of adjustments and reviews undertaken ● recording all claims made to HMRC with reference numbers, along with details of the grant payments received. In addition, employers should consider Where errors are found, these should be notified to HMRC as soon as possible whether they need to review their CJRS claims, so they can demonstrate to HMRC and other stakeholders, such as auditors and investors, that they are supportable. Where errors are found, these should be notified to HMRC as soon as possible. Finally, if HMRC sends a letter concerning CJRS claims, whether it’s a nudge letter or formal enquiry letter, take it seriously. You should note the deadline, pro-actively locate the information requested, consider if external professional advice is needed and engage with HMRC. n
| Professional in Payroll, Pensions and Reward | September 2022 | Issue 83 16
Made with FlippingBook - Online magazine maker