COMPLIANCE
HMRC’s employer compliance interventions
Susan Ball, tax partner at RSM Employer Solutions and president of the Chartered Institute of Taxation, Lee
Knight, employer solutions director at RSM UK and Julie Moore, employment tax director at RSM UK provide an update on the areas Her Majesty’s Revenue and Customs (HMRC) is conducting compliance checks in, and share their top tips on how you can start to prepare
I n recent years, HMRC has increased its employer compliance activity by adopting a range of approaches. A compliance review could now: ● cover pay as you earn (PAYE) compliance in general ● be an aspect review covering: ❍ the coronavirus job retention scheme (CJRS) ❍ national minimum wage (NMW) ❍ off-payroll working (IR35) rules ● be part of a business risk review for larger employers. Since the beginning of the coronavirus pandemic, we’ve also seen an increase in HMRC’s use of a desk-top approach, by issuing initial letters containing a list of questions to establish if further interactions are needed. When a full review is subsequently instigated, HMRC will often request details for the past three years instead of just one. This is an interesting development as, arguably, it changes the focus of the visit from a check to ensure an employer is compliant, to one in which HMRC is also actively seeking to identify areas where errors have been made in previous tax years. This could result in the recovery of underpaid taxes and National Insurance (NI) contributions. Then, there’s the issue of who HMRC needs to speak with. For basic PAYE compliance checks, HMRC will want to speak to the people who deal with payroll, expenses and benefits, and often human resources, to talk about the processes and procedures in place. In smaller employers, this may be one person, but in larger
employers, it’s likely to be at least three different people. In these circumstances, it’s important the employer is well-prepared, as any seemingly inconsistent or unclear information provided to HMRC in relation to a particular benefit or expense can lead to unnecessary complications. It changes the focus of the visit from a check to ensure an employer is compliant, to one in which HMRC is also actively seeking to identify areas where errors have been made Business risk reviews HMRC is likely to engage with the top 2,000 of the UK’s largest businesses in ‘real-time’ via customer compliance managers. This is part of the updated business risk review (BRR+) process that aims to identify emerging tax risks across the taxes and encourage taxpayers to apply a lower risk approach to their tax affairs. The new notification of uncertain tax
treatments regime is expected to result in even more dialogue with HMRC. However, coming off the back of the need to ensure compliance with CJRS / furlough rules, arguably for many, this may result in less dialogue. For 2019/20, the yield from HMRC’s large business directorate was £13.2 billion, but it decreased for 2020/21 to £8.6 billion, probably because of the pandemic and HMRC resources being moved onto other areas of work. See: http://ow.ly/ EHyw30sm10U. HMRC started its new approach to risk assessments in October 2019 and although BRR+ activity reduced due to the pandemic; we’re now seeing an increase in activity. The risk assessment process now provides for four categories of risk, being: ● low ● moderate ● moderate–high ● high. These categories apply for each tax regime, of which employment tax is one. Behavioural factors are assessed, and a risk rating awarded for each regime. Businesses are also allocated an overall risk rating. HMRC considers three factors when
assessing risk, namely: 1.) systems and delivery 2.) internal governance 3.) approach to compliance.
Several factors are therefore reviewed and are deemed important by HMRC when determining risk ratings, including procedures supporting compliance with:
| Professional in Payroll, Pensions and Reward | July - August 2022 | Issue 82 22
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