Tax Disputes & Investigations

HMRC PAYE Audits/ Inspections – Employer Compliance Reviews (ECRs)

Each year HM Revenue & Customs (HMRC) carries out 30,000 (approx) Employer Compliance Reviews to check the operation of PAYE and National Insurance. On average, each review leads to a financial settlement of approximately £10,000 – irrespective of the additional time and professional fees incurred. More Employer Compliance Reviews are carried out by HMRC than any other form of direct tax enquiry, so there is a very real risk to all businesses.

These days, HMRC carries out very few truly random reviews and most are triggered by an event or reason, but HMRC rarely discloses this at the outset. It could be an error on a Form P35, an apparent omission from a Form P11D, a review of the business accounts or the owner's personal tax returns or other third party information obtained by HMRC.

Many businesses believe that their payroll looks after itself and underestimate the scale and scope of an Employer Compliance Review. Typically, a review will cover areas such as:

• Payroll and the operation of PAYE and National Insurance;
• Expenses and reimbursement procedures;
• Statutory payments (e.g. sick pay, paternity and maternity pay);
• One-off issues (e.g. redundancy or termination payments);
• Expatriate and inpatriate workers;
• Benefits in Kind and non-cash remuneration;
• Construction Industry Scheme;
• Employment Status ('self-employed' or 'employed');
• IR35 issues; and
• National Minimum Wage compliance.

What happens during an Employer Compliance Review?

HMRC will usually want to conduct the review at the business premises. However, owners are under no obligation to agree to this and can instead arrange for the review to take place elsewhere.

Meetings will typically be attended by two inspectors. Without specialist professional help, this can feel intimidating and uncomfortable.

Typically, a review begins with a lengthy interview with the person(s) who deal with the business finances and payroll. HMRC's aim is to understand more about how the business operates and to assess the controls and checks that are in place. The Inspectors are looking for potential areas of weakness and/or possible failures in the systems operated by the business, which is why specialist advice at the interview is essential. The areas can include:

• No proper procedures when taking on new employees;
• In adequate records for cash drawn to pay wages;
• Cash/till control procedures;
• Expenses/claims procedures;
• How expenditure by Directors is monitored and recorded;
• Undeclared benefits in kind;
• Possible omissions from payroll (e.g. bonuses and overtime); and
• Payments to self-employed workers.

Once the interview stage is completed, the Inspectors will move on to examine a sample of the business records (typically a period in the last twelve months). The Inspectors may also ask for copies of the payroll records (either physically or on a computer disc) so that additional checks may be undertaken later back at the HMRC office. It should be remembered that an Employer Compliance Review is limited in scope – the Inspector should not discuss the business accounts, any personal tax returns or matters which have no bearing on wages or benefits paid by the business. Specialist representation can help ensure that the Review is properly controlled.

At the end of the record review, the Inspector will normally conclude by asking a series of questions about any contentious or unresolved issues. Care needs to be taken in answering any questions without first seeking professional advice – once an answer has been given (even in good faith) it is often more difficult to argue against it if the answer was based on poor recollection, misunderstanding or a mistake.

A letter summarising the outstanding points and copies of the Inspectors' notes of any discussions/interviews should be provided by HMRC shortly after the meeting. Irrespective of any such requests from HMRC, the notes should not be signed by the business owner – rather any obvious omissions or discrepancies should be made separately in writing.

Any remaining contentious issues will then, typically, be the subject of further argument with HMRC. The overall aim is to try to agree the settlement or closure of the review without the need for litigation (unless the case warrants it).

How can OneE TDI help?

At the core of OneE TDI is a highly experienced team specialising in all areas of tax disputes and investigations work. We offer confidential, non-judgemental advice to best defend our clients and have a proven track record in successfully managing all contentious tax matters. We have successfully defended numerous businesses and ensured that any Employer Compliance Reviews by (or disputes with) HMRC were resolved quickly, fairly and with little disruption to the business itself. We provide a comprehensive service to accountancy and legal practitioners and their clients. Our advice saves our clients time and money and helps reduce their potential exposure to tax, interest and penalties.

Putting it simply, we take control of and manage all issues relating to Employer Compliance Reviews so you can get on with your life and your business. What price peace of mind?

Please see the Testimonials kindly provided by our clients (or their accountants or lawyers), which confirm our levels of client service.

How can I contact OneE TDI?

If you would like a free, no obligation discussion with us, please contact either Gary Rowson or Mark Taylor on 0800 652 6156 or complete and submit the online form below.

Whilst we endeavour to provide informative and accurate information, the content on this site is for general information purposes only and should not be taken to constitute tax or legal advice which must always be tailored to individual circumstances. Please contact us if you would like to discuss matters.

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