Payroll insight
Self-review of NMW
Jeni Morris, NMW specialist with Ernst & Young’s People Advisory Services and formerly a NMW investigator at HMRC, reveals HMRC’s growing use of self-review
T he budget for HM Revenue & Customs’ (HMRC’s) national minimum wage (NMW) and national living wage (NLW) department has ballooned by around 300% since 2010, increasing by £4.3 million to £24 million for 2017–18. New investigators are being recruited to expand the scope and number of investigations and as a result the amount of arrears recovered and penalties issued are accelerating. Though the level of arrears paid out after NMW and NLW investigations is growing dramatically, penalties appear not to be keeping pace. This may be because HMRC’s increasing use of the self-review process saves on resources by transferring the investigative cost burden to the company under investigation. An incentivising side-effect is that the company incurs no further penalties with respect to this part of the NMW or NLW breach. However, the option of self-review may not be made available to all companies. The self-review process that may be offered by HMRC during a NMW or NLW investigation seems to be a continuation of the previous, under-used amnesty programme. After identifying a contravention of the NMW or NLW rules and issuing a notice of underpayment (NoU), HMRC can invite the company to self-review – to undertake its own investigation and calculations, and to submit the results to HMRC for approval. This frees up HMRC resources by transferring the investigative burden to the company. Although its budget has expanded greatly, HMRC does not have sufficient resources or staff to undertake the vast weight of contraventions of the legislation. Offering companies the possibility of a self-review allows HMRC to concentrate its resources on the more complex cases, as investigations
into smaller companies and minor contraventions eat up a disproportionate level of resources for a comparatively low return. Self-review uncovers arrears, but there are no penalties in such cases. ...an urgent need for clarification of the administrative framework in this area As well as efficiently targeting HMRC resources, the self-review process also has several advantages and incentives from the company’s perspective: ● the company maintains control over the timing and content of the calculation and review process ● although it must repay any arrears identified, the company does not have to pay a penalty (currently levied at 200% of the arrears identified) ● the company will be named and shamed only with respect to the initial individual NoU issued, but will not be named and shamed for any other cases that it has managed to self-identify. Self-review appears to carry great potential advantages for companies. So why don’t more companies take advantage of this option, or even offer a self-review? The answer seems to be that they may not be free to decide. The criteria by which HMRC compliance officers decide whether to offer a self- review are not transparent. In particular, it is unclear whether the decision turns on unpublished fixed HMRC benchmarks, or is made at the discretion of the investigatory official(s). A further consideration might be both the key performance indicators set for the compliance officers and overall
departmental benchmarks for case turnaround. There is no published data on whether a company may offer to self- review to protect itself from penalties and reputational damage from naming and shaming. Such a move might be a shrewd tactical and strategic move from a company that has received initial notification that a HMRC investigation is ongoing. But if HMRC does not offer a company the option of self-review, can the company offer to self-review? And does the company have the right to undertake a self-review, or is this option available solely at the discretion of HMRC? If the grounds for this decision are not transparent, published or notified, would it be possible for a company to challenge HMRC’s discretion on this point? And, lastly, are some types of companies being treated more leniently than others in being granted the option of a self-review? According to a report published by the Department of Business, Energy and Industrial Strategy in October 2016 (http:// bit.ly/2vwqtNM), HMRC has “flexibility” to instruct employers to self-correct to free up HMRC staff for other investigations only where it is deemed “appropriate”. And it should be viewed as an “additional tool” to “maximise the impact of [HMRC’s] enforcement activity.” HMRC is otherwise silent on these matters. While it has published guidelines on how a company is to carry out a self-review, the basis for decisions and discretion lacks transparency. Companies are being forced to counter complex, lengthy and expensive investigations in a quasi-judicial environment where they do not know the rules and boundaries. There is an urgent need for clarification of the administrative framework in this area. n
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| Professional in Payroll, Pensions and Reward |
Issue 33 | September 2017
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