News

Tax investigations have arrived thick and fast in the last number of years and there is no sign of this trend slowing down. PAYE enquiries are one area that HMRC has specifically focused on and the outcomes for such enquiries can result in significant liabilities. However, with the right records and procedures in place, these enquiries can run smoothly.

Why me?

Clients often query why they are chosen for enquiry if all their tax affairs are up to date – the reality is that any business employing people or engaging sub-contractors can expect a routine visit around every 5 years. In the past we could identify trends in relation to the type of business targeted. However this is becoming less predictable and all businesses can be subject to a PAYE inspection from supermarkets, to contractors, to hairdressers.

So what does HMRC look for?

Below are two case studies which highlight some of the main areas that PAYE inspectors target. In many cases these compliance areas are not obvious and can come as quite a shock for an employer.

Case Study 1

A limited company involved in the construction industry received a routine PAYE inspection. They were engaged on contracts throughout the UK and as well as having a number of employees, engaged several sub-contractors, including a number of surveyors and architects. The company met all business expenses for both employees and sub-contractors when working on contracts in mainland UK. This included accommodation, travel and subsistence and in some cases, the provision of a vehicle for travel to and from work.

The main areas of concern for HMRC included:-

1. Employment status – were the sub-contractors genuinely self-employed or could they be deemed to be employees of the company, particularly given the company was paying for all business expenses on their behalf?
2. Business expenses – were they genuine business expenses or do they form part of the employment package and have they been treated correctly via PAYE?
3. Business vehicles – did any employee or director incur any private use of a business vehicle including company vans or even have a vehicle available to them?
4. Employee loans – did any employee or director benefit from a loan from the company?

Case Study 2
A supermarket received a routine PAYE inspection. All workers were employed.

 The main areas of concern for HMRC included:-

1. Workings hours – did employees get paid for all hours worked e.g., cashing up time.
2. Bank statements – showed monthly payments to a medical insurance provider – possible benefit in kind implications.
3. Casual employees – were any employees being paid off the ‘books’?
4. Mileage claims – were they all genuine business trips and paid at or below HMRC scale rates?
5. High entertainment costs incurred including meals abroad – were these all allowable?
6. Gifts to employees – are they deemed to be trivial or should they be taxable?

Prevention Better than Cure

A business that maintains good records and keeps its tax affairs up to date should, even if faced with an unexpected investigation, have little to fear.

We will be launching our new ‘PAYE MOT’ service for businesses which may wish to have the comfort of knowing that, in the event of a visit, they are PAYE compliant.