With a mind-boggling amount of tax law covering the way staff get paid in the UK, it is easy for employers to get things wrong, leading to an increasing number of tax enquiries from HMRC into staff payments and benefits.
In the UK, HMRC have the power to open an Employer Compliance Check, which allows them to look into the affairs of a business and check that payments related to employment are taxed correctly.
Not just salary and bonuses
These checks don’t just cover salary and bonuses, they also cover benefits, pension contributions, Minimum Wage issues, and other aspects. Due to the sheer volume of tax law governing staff payments, it is easy to see why employers get things wrong. Common areas that lead to errors include:
- Company cars
- Fuel cards
- The provision of other benefits – e.g. vouchers
- National Minimum Wage issues – for example deducting the cost of a uniform or training
- Salary exchange arrangements
Penalties for payroll errors
There can be significant penalties if errors are identified, up to 100% of the underlying tax in some cases (although likely to be around 30% in most cases). In serious cases employers can also be ‘named and shamed’ by HMRC, which can be severely detrimental to the business.
As HMRC have access to more sophisticated data analysis, we are seeing more of these enquiries raised. But rather than wait for HMRC to visit and identify errors, we are encouraging businesses to run an internal process to identify any problem areas. By addressing these now and dealing with them, this can lead to cost savings down the line and significantly less hassle from HMRC.
Safeguard against tax enquiries into payroll
We can undertake a shadow Employer Compliance Check to help identify any areas of weakness that need addressing, so that these can be resolved in advance of any real HMRC Employer Compliance Check. Our dedicated payroll team look after businesses of all sizes; from those smaller businesses who simply prefer not to employ their own in-house team, through to large companies who choose to outsource their complete payroll solution to Shorts. Drop us a line and begin your journey with us today.
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David Robinson
As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.
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