HMRC to recruit over 5,000 compliance officers

The government has confirmed that HMRC are recruiting over 5,000 compliance officers to clamp down on businesses who have underpaid tax and/or National Insurance (NIC). We can help your business ensure it’s ready before they visit.

Rachel Reeves’ Spring Statement didn’t have much new information for employers, but she did re-emphasise her commitment to ‘closing the tax gap’, pledging to recruit a further 500 HMRC compliance officers to clamp down on businesses who underpay taxes (in addition to the 5,000 new officers announced in the Autumn Budget).

HMRC have information and inspection powers enabling them to gather information, obtain documents and inspect business premises to check the correct amounts of tax have been paid at the right time. Even though most employers want to comply with HMRC rules, due to complex tax legislation which can be difficult to understand and follow, many employers unknowingly underpay tax and/or NIC. The penalties and negative publicity for companies (and their directors) found to be non-compliant can be costly.

Employer compliance checks

HMRC can conduct their checks on businesses at random or as part of a designated cycle for larger businesses. Although, an employer compliance check can also be triggered by things such as discrepancies in tax returns compared to previous years, those of similar businesses, or if there have been late filings, tax payments or irregularities discovered in other taxation areas by HMRC.

If your organisation is notified by HMRC that it intends to undertake a check of its employer records, you should not ignore this; HMRC will not go away and at this point, you are already susceptible to HMRC’s penalty regime should errors be found.

Usually, HMRC will state the period and records it would like to review. The check could be performed informally by way of a questionnaire and telephone call, or as we have seen more recently, an on-site visit. Whatever approach is adopted by HMRC, it is important that care and attention is given to the answers provided, the compliance check is taken seriously and is appropriately managed.

If, in performing its check, HMRC discovers there has been an underpayment of income tax and/or NICs, it can extend its check to cover the last six closed tax years where there has been careless or negligent behaviour. 

Additionally, HMRC can charge a penalty of up to 30% of the amount of income tax/NICs recovered, on top of late payment interest. If errors are deliberate, there is a failure to notify HMRC of an error, or for cases involving fraud, HMRC can further extend the period of review and charge much higher penalties.

High-risk areas

Common high-risk areas are:

•  off-payroll working/IR35/employment status
• changes to working patterns e.g. travel and subsistence and working from home
• staff entertaining
• operation of PAYE on termination payments
• national minimum/living wage compliance
• non resident directors
• short-term business travellers and mobile employees.

Informant/whistleblowing rewards

The risk of businesses facing an employer compliance review has further increased by HMRC launching a new reward scheme, similar to those in place in Canada and the US, where incentives will be offered to informants.

In a UK first, whistleblowers will be awarded compensation based on a percentage of tax recovered by HMRC because of their investigations.

These changes mean it’s vital that businesses ensure they have compliant employment tax processes underpinned by clear policies and procedures to enable businesses to comply with their tax obligations.

How we can help

We can help you to ensure your business is compliant and ready for HMRC employer audits by performing an employer health check which mirrors a typical HMRC employer compliance visit.

We will meet with key stakeholders and those managing the business’s employment taxes to perform an HMRC style interview. Our questionnaires are based on those used by HMRC. Following our review, we will produce a user-friendly traffic light system report, highlighting any areas of non-compliance or where improvements are recommended, the level of associated risk and how matters can be rectified and mitigated both now and in the future. 

Where any issues are identified, we can support businesses with making voluntary disclosures to HMRC. The benefit of such a disclosure is that it can bring a matter to a conclusion, provide certainty, lead to reduced interest costs and, in most cases, an agreement with HMRC on a reduced level of penalties. 

By applying our deep understanding of tax legislation and practical experience, our specialists can achieve substantial savings by ensuring that businesses only pay the income tax/NICs that are due and properly payable.

If you have received a HMRC check of records notice or would like to proactively manage your employer compliance risk in this area, please contact Dino Jangra, John Manis, or your usual Crowe contact.