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PAYE healthcheck

What do PAYE compliance reviews mean for you?

Are you confident in your payroll, expense and benefit procedures?

With ever increasing pressures on businesses and their owners, an employer’s focus may not always be on their systems and processes around payroll, expenses and benefits.

HMRC are stepping up their compliance activity. The tax gap is an estimated £35bn and HMRC has to close this. When 46% of the tax gap relates to errors, failure to take reasonable care or legal interpretation, it shows how easy it is to make a mistake and to get things wrong.

When HMRC do undertake an employer compliance/PAYE review, it is to ensure that employers and contractors are meeting all their employment tax obligations.

What is the PAYE healthcheck?

A PAYE tax, national insurance health check is a comprehensive review of your policies, procedures and practices, to ensure your systems are robust and culminates in purposeful and practical recommendations.

We can produce a detailed report which summarises the actions you need to take around PAYE compliance. The health check might mean a disclosure is needed to HMRC.

HMRC employer compliance reviews

HMRC will often focus on the following areas:

Operation of PAYE and national insurance (NI)
Operation of payments to subcontractors under construction industry scheme (CIS)
Reporting of benefits in kind on form P11D e.g. accommodation and beneficial loans
The status of workers – especially any worker paid off-payroll and non-executive directors
The correct treatment of entertainment expenses
Off-payroll workers and the operation of IR35
Termination payments, especially following the introduction of the post-employment notice pay (PENP)
Travel expenses including business mileage and subsistence
Company cars, vans and fuel
Employees entering or leaving the UK
Salary sacrifice arrangements and their compliance for certain schemes following the optional remuneration arrangement (OpRA) legislation

If HMRC establish a liability to tax or NI, the amount owing will also include interest on any late duties and potentially a monetary penalty based on a percentage of the tax and/or NI due.

Obviously, the best way to handle an employer compliance review is to ensure your PAYE tax and NI with your systems and processes is right in the first place and importantly that you keep records to show this. However, we know how complex the legislation is and how easy it is to make genuine mistakes.

Employers should consider a PAYE health check every few years. If you’re doing something wrong in the current year, you have the chance to rectify this before the tax year ends so that it is taxed and reported correctly. If you have made mistakes in previous years, it is better to notify HMRC of these mistakes than letting them find the mistakes themselves; by doing this it might help to mitigate and reduce any penalties.

What happens during a PAYE health check?

Review

Payroll, expenses/benefits and any staff incentive procedures to ensure compliance with current legislation
Procedures and documentation for workers coming to the UK, in particular short term business visitors or going overseas to work
Background information and current issues relating to the employment status of any off- payroll worker
All related systems and processes relating to employment tax
Review national minimum wage (NMW), where required.
Where applicable, review construction industry scheme (CIS) – compliance and identifying companies that are deemed contractors under the scheme

2. Highlight any areas of concern

3. Ensure that HMRC’s business expense exemption can be applied

4. Apply (if applicable) for a PAYE settlement agreement (PSA) – for items that will not be included on P11Ds or covered by an HMRC exemption or concession or if applicable, review any existing PSA to identify any potential refunds.

5. Identify any areas of potential exposure and corrective action needed.

6. Identify any areas where there are planning or cost saving opportunities and more tax efficient processes