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Beyond the balance sheet

HMRC PAYE audit warning! Why you need to prepare for it

Ercan Demiralay 22/11/2019 2 minute read

Ercan Demiralay FCCA on the need to plan for the taxman visiting to inspect your payroll records.

HM Revenue & Customs (HMRC) is directing a lot of attention on areas where tax revenue is perceived as being lost. For this reason organisations are being visited for a HMRC PAYE audit. The aim being to confirm, or otherwise, whether your payroll is being conducted in accordance with the rules and regulations set out in the “Employer’s Further Guide to PAYE and NICs”.

Given the revenue have become increasingly aggressive in recent years, it should come as no surprise that the nature and scope of these inspections has grown over time. This means your chances of receiving a visit have increased, considerably!

Get advice to ensure your payroll is in order for a HMRC PAYE audit 

We’ve put together this post to help you prepare for if, or when, the tax inspector comes calling.

What HMRC will check:

  • Are the right employee codes are being used?
  • PAYE deduction working sheets for precision and completeness
  • Are new employees and leavers being handled in the correct manner?
  • Reconciliation of the records with the Final Full Payment Submission (FPS) and/or Employer Payment Summary (EPS) for the tax year
  • Cash payments where PAYE has not been operated
  • Employee benefits, expense payments and their correct disclosure on forms P11D or P9D
  • Compliance with NIC regulations
  • Acting in accordance with all rules in relation to sub-contractors’
  • Adherence with the terms of any dispensation

Likely areas where issues will arise:

  • Payments to suspected ‘self employed’ people
  • Lump sum expenses
  • Purchasing of petrol for private use
  • Payments to spouse’s for travel and subsistence
  • Gross payments to casual employees
  • Staff rewards
  • Travel to work from home and home to work
  • Trips unrelated to business activities such as social outings and trade fairs
  • The use of a home as an office for the purpose of expenses
  • The Trivial Benefits system
  • Medical expenses
  • Entertainment
  • Home telephone
  • Club subscriptions
  • Lunch related expenses
  • Clothing
  • Accommodation
  • Where goods and services have been provided free/below market value
  • Work undertaken at an employee’s home

What you need to do

Usually most of these audit visits result in inconsistencies being uncovered. HMRC will then calculate the tax and NI lost over the last 6 years as well as the current tax year. That period of time can be extended and penalties may also be applied at their discretion should they suspect deductions have been withheld deliberately.

It would therefore be wise to obtain a professional review of the wage and salary data of your employees to identify any PAYE and NI discrepancies prior to a visit. If the taxman has already conducted their checks then you should seek advice to help in negotiating any potential settlement with the revenue.

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This post was created on 11/01/2017 and updated on 22/11/2019.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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