Employer Compliance Reviews – HMRC’s current focus areas
HMRC Employer Compliance reviews are something most businesses are faced with at some point. These enquiries can cover a vast area of business procedures, however, tend to have a heavy focus around payroll, employee expenses and benefits, staff entertaining and…
Blog25th Jun 2018
HMRC Employer Compliance reviews are something most businesses are faced with at some point. These enquiries can cover a vast area of business procedures, however, tend to have a heavy focus around payroll, employee expenses and benefits, staff entertaining and a whole host of other employee related matters.
These enquiries can be extremely laborious with the requirement to provide HMRC with large quantities of information around the area of enquiry. We previously covered this area in our ‘When HMRC Come knocking…’ blog however we feel it would be useful to provide an update on the typical areas of interest for HMRC, and give an overview of the rules surrounding these subjects.
In many of the enquiries we have dealt with on behalf of our clients, responses received from HMRC indicate that the individual dealing with the enquiry does not have a full understanding of the legislation and how it applies in a real business environment. It therefore becomes critical to be able demonstrate how our clients’ business operates and how the legislation has been applied in line with their operations and what is realistically expected of a business.
The tax implications of staff entertaining costs are often forgotten as employers consider their annual budgeting, making this an area ripe for HMRC to review, but what are the key points to bear in mind when scheduling another busy year of events to ensure full tax compliance?
The vast majority of employers who provide their staff with annual parties, such as a Christmas party or Summer barbeque, would not expect their employees to pick up the tax cost as a result of this benefit and there is a £150 tax-free limit per head for annual functions within the benefits legislation.
HMRC will look to confirm that all conditions for the £150 exemption to apply have been met. It is therefore imperative that the business can demonstrate that all of the requirements have been met along with the appropriate record-keeping back-up. If sufficient detail cannot be supplied to HMRC, they can and will insist that the event was not in fact qualifying and seek to charge income tax and National Insurance on a grossed up basis on the full amount.
For all other entertaining, HMRC seem keen to suggest that if a business cannot show who attended the event and have detailed records of invitees and acceptances, then it should be treated as staff entertaining and grossed up for tax and NI purposes. Obviously this route will cost more than the disallowance for Corporate Tax purposes when it is client entertaining, so making sure appropriate records are kept that HMRC will deem acceptable is critical to managing this risk area.
Another key area that HMRC can raise enquiry into is employee travel expenses. Although specific travel falls out with the scope of charge, for example business travel, in many cases we have seen HMRC review the back-up available to support the tax treatment applied, particularly where the expenses are being treated as not taxable.
Examples of such travel that HMRC like to focus on include home to work commuting and per diem payments for employees travelling both in the UK and globally.
This has been a major sticking point for many employers where they thought their expense claim form contained all of the necessary information to validate the claims in line with the legislation and HMRC guidance, when on review, HMRC have deemed this not to be the case.
We have recently assisted a major global business in their employer compliance review, and it has taken over 2 years and serious negotiation to get HMRC to agree to the liability being reduced from over £1 million to just short of £50k specifically in relation to per diem payments and the level of records kept.
In the vast range of enquiries we have dealt with, the importance of being able to provide HMRC with full responses and pre-empt their questions based on the information being provided has allowed the enquiry to be closed off at the earliest opportunity.
In addition, the benefit of seeking professional support with employer compliance reviews cannot be underestimated, and our experience has shown that by challenging HMRC’s assertion in line with the legislation and guidance can see the charge being imposed eliminated or reduced.