PART 1: DATES, DEFINITIONS AND OBLIGATIONS
Quality control One key development of the digital delivery of payroll data and the exchange of data between HMRC and employers is the improvement of quality control. Because the data is digitsed HMRC are able to apply sophisticated automated control tests on employers submissions and for some time this led to numerous enquiries to employers. It has been said that because of this, employers diligence with payroll has improved. RECORD RETENTION HMRC advise employers to retain PAYE records for a minimum of three years after the end of the tax year to which they relate in order to comply with the Income Tax (Pay as You Earn) Regulations 2003. This includes details of Statutory Payments (SAP, SMP, SPP and SSP) and student loans. MAT B1 maternity certificates and statutory payment exclusion forms. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS The Registered Pension Schemes (Provision of information) Regulations 2006 place similar record retention on sponsoring employers of an occupational pension scheme. For auto- enrolment purposes some records need to be kept for six years to prove compliance. There are other considerations such as outstanding payments and retrospective pay arrears for which supporting records may need to be retained that precede this period. A more important issue however relates to penalties that could be incurred following an HMRC compliance check if records are not available to mitigate the penalty. In general terms where an inspection reveals a practice which has resulted in an error (underpayment) in the calculation of PAYE due, the calculation of the total liability may be made on the basis that the error has been perpetuated during the whole of the current year and up to three previous tax years. All HMRC assessment rules now use this fixed four year period in which penalties can be levied, though in practice HMRC can go back an unlimited period of time if criminal evasion is suspected. Six years is the time limit to enforce a contractual agreement, as prescribed by the Limitation Act 1980. For example, failure to subject a specific type of payment to PAYE over the period of records inspected, say £1000 underpaid following the examination of two monthly payrolls could result in a penalty calculated thus: £1000 × 6 (One year’s liability) × 4 (four year’s retrospection) = £24,000. In order to mitigate such a penalty responsibility rests with the employer to prove otherwise by reference to actual records. For this reason employers may well deem it prudent to retain records for longer than the statutory period of current tax year plus three previous years. No printing, copying or reproduction permitted. This has become even more important since implementation of the Data Protection Act 2018 in May 2018. Employers must decide what their record retention policy is and which of the variable factors it is going to comply with and then convey that decision to employees as part of its DPA 2018 statement. Employers will then have to implement strict destruction processes once the time limit decided upon expires.
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