We have been helping a number of our client’s with HMRC’s latest questionnaire. Whilst most of the items on the questionnaire will be familiar it is important to remember that mistakes can often give rise to large liabilities. HMRC can go back six years, they will charge interest and they could charge a penalty of up to 100%. Business owners must ensure they get this right!
We set out below some of HMRC’s hot topics from their latest questionnaire.
HMRC will ask “who are your directors and how are they paid?” HMRC will want to know how the directors are paid and a check at Companies House will reveal the details of current directors. They will be able to check who is paid via the payroll and who is not.
They may also look at director’s expenses. If an error has been made the employer needs to consider who is bearing the risk.
HMRC will expect an employer to be in control of the payroll, even if it is outsourced, a basic mistake could give rise to a sizable liability.
HMRC’s questions may include: Have there been any payments of SMP, SPP, SAP or ShPP? Are all statutory payments included within the payroll and returned within the FPS? Are any employees being paid below the National Minimum Wage / National Living Wage?
Off Payroll workers
Questions may include: How many workers are paid off payroll? Do you use any workers on a casual basis? Have any directors or employees been paid consultancy fees?
HMRC will require a full explanation of any positive answers and they may also ask for the names and amounts paid in the last 12 month period.
Employee status is often a grey area. Engagers must give each engagement due consideration as they are responsible for determining the tax status of a worker, not the worker.
Termination and redundancy payments
HMRC will ask for details of payments made in the last 12 months. Employers must consider how the package has been treated and they must be able to demonstrate that the correct tax and NI treatment has been applied.
Payment In Lieu Of Notice (“PILON”) is high on their agenda. Given the recent changes this may be an area of potential exposure for employers.
Expenses and benefits
Payment of round sum allowances – Their main objective is to understand why the employer is making the payments. The employer will need to explain their rules and how they monitor claims.
Phone or broadband costs
Mixed use is the potential problem here. The costs involved are not usually high, but the tax and NI treatment can often be messy.
Employers must distinguish between business and staff entertaining. Record keeping and expense description is key.
Home to work travel
With increasingly flexible working arrangements, employers should regularly review their employee’s permanent workplace.
Company car and van fuel
Employers who make mistakes with a fuel benefit charge typically pay the tax that is due to HMRC on the employee’s behalf. Employers should take great care with this issue. They must consider how business fuel is reimbursed.
Company vehicles (including pool vehicles)
Company vehicles is another hot topic for HMRC. Are employees provided with company vehicles for private use? Are they all shown on P11Ds? What vehicles are not included on P11Ds and why not? Are records available to demonstrate the tax and NI treatment adopted?
Are mileage records maintained? Are hire cars used and how is any private use monitored? Where are pool vehicles kept overnight? Are all pool vehicle conditions met?
HMRC asks that employers provide details of all salary sacrifice arrangements. Under the new rules employers need to consider not only salary sacrifice, but also any benefit where there is an option to take something else instead (for example car or cash). The rules are complex and employers should carefully review their benefit packages (including exempt benefits). Employers should also consider any renewals or changes to ensure they do not fall foul of HMRC’s rules.
Given the complexity of international taxation and social security, HMRC will pay particular attention to any employees who are seconded from a subsidiary, parent or associated company and any employees working abroad on assignment.
If your business receives a copy of HMRC’s Employer Compliance Check Questionnaire please speak to us before completing it.