Increased HMRC employer compliance reviews

One of the least anticipated visits for employers is when HMRC decide to undertake a compliance review on payroll and benefits. This is particularly so when the review involves a site visit of two or more days by two HMRC officers, followed by some lengthy correspondence. Our experience is that these visits are now increasing, particularly post COVID.

The reviews are disruptive for schools and there is always a concern that HMRC will find something wrong. Schools should take control of the process, and keep in mind that it is HMRC’s job to find errors to avoid undue alarm. We find that most employers try to ensure their payroll and benefits compliance is correct and up to date, but mistakes do happen. 

Sometimes errors arise from insufficient tax or National Insurance Contributions (NIC) knowledge, or not seeking advice from your tax advisers leading to misinterpretations. This can in turn lead to incorrect tax/NIC treatment or reporting. Also, simply following what happened last year (and in earlier years) can compound inherent problems and lead to additional tax and NIC liabilities arising for the current and earlier years. 

When this happens, HMRC can charge interest and penalties or reach a settlement with the employer depending on the nature of the error. 

To avoid unnecessary problems and to make these visits as painless as possible, schools should try to make sure they deal with their payroll and benefits obligations correctly and on time. 

It is not surprising that HMRC are now stepping up visits to schools, especially boarding schools where living accommodation is provided to staff. 

In April 2021, the concessional living accommodation exemption for Representative Occupiers was withdrawn. Schools should have reviewed their living accommodation provision to ensure that one of the statutory exemptions could apply, where they would have previously relied on this. If a statutory exemption doesn’t apply the benefits need to be reported on forms P11d as appropriate. HMRC know this could be a real issue.

In addition, it is likely that HMRC will be looking into claims made under the Coronavirus Job Retention Scheme (CJRS).

If you do have a visit, there are a number of measures to take to try to stay in control:

• Set aside a room for HMRC to use away from other staff. (offer them tea and coffee!)
• Take records/documents to them, don’t let them find the information for themselves.
• Don’t let them wander about looking at records they are not entitled to see. 
• Only let them speak to staff who know and deal with the payroll, expenses and benefits. 
• Don’t let them speak to staff who may not understand the full picture as HMRC will form the wrong impression which may be hard to change.  
• Don’t guess answers to questions, say you will check and get back to them.
• Do seek professional advice where you need to. 
• Don’t agree to anything on the days of the visit.
• Ask HMRC to put their proposals in writing to allow you to consider whether HMRC understood the situation or take further advice.

Above all do not panic. Seek advice from your usual tax adviser as soon as you receive a notice of a visit by HMRC.

At Crowe, we have helped many organisations through this process and we have the technical expertise to help achieve the best outcome and help keep HMRC at arm’s length, even when errors have occurred.