The National Audit Office (NAO) released its report at the end of 2022, finding that £9bn less tax revenue was collected by HMRC during the 2020/21 and 2021/22 tax years as a result of a shift in focus by HMRC to Covid support schemes.
With most Covid support schemes now closed, we expect renewed focus from HMRC in tackling non-compliance over the coming months, including significant effort aimed at employer compliance.
The off-payroll working rules (commonly referred to as “IR35”) have applied to medium and large employers in the private sector since April 2021 and, despite the uncertainty surrounding the “mini-budget”, are here to stay. HMRC committed to a light-touch approach for one year following the introduction of the rules. This has now expired and we are already seeing increased activity in this area.
Employers should prepare for a review and manage tax risks around off-payroll working by:
- Performing regular (at least annually) audits of the off-payroll population engaged by the business to ensure the business has accurate records relating to these individuals;
- Undertaking status assessments on a periodic basis to ensure that all current facts and circumstances are taken into account;
- Reviewing the business’ off-payroll working policy to ensure that it remains fit for purpose; and
- Reviewing new arrangements to confirm the supply of labour is aligned with the off-payroll working policy and determine if any contractual protections need to be secured.
National Minimum Wage (“NMW”)
Compliance with NMW is a complex area and it is often unintended errors that lead to shortfalls in NMW compliance. Naming and shaming of employers that fail to comply with NMW also presents a reputational and financial risk, creating wider implications for the business.
Although the introduction of a single enforcement body covering all aspects of pay governance has been shelved, HMRC will continue to enforce NMW. Some important questions you should consider, if you have not recently reviewed your NMW compliance include:
- Are there appropriate systems in place to update the relevant NMW rates each year?
- Have you correctly classified your workers to enable accurate NMW calculation?
- Are workers being paid for all the time they are ‘working’?
- Are workers obliged to pay for items (such as uniform) that may reduce their pay for NMW purposes?
Pay As You Earn (“PAYE”) Audits
While we would expect the areas above to be covered as part of an employer PAYE audit, HMRC will also focus on an employer’s wider compliance relating to reward and benefits. Although not an exhaustive list, there are some key areas that we have seen HMRC focus on in recent months:
- Homeworker travel and subsistence;
- Provision of homeworking equipment; and
- Staff entertainment.
Undertaking a proactive review of employment tax compliance can have a number of benefits including, identifying cost-saving opportunities, limiting potential penalty exposure and managing HMRC relationships.
Evelyn Partners has a wealth of experience supporting employers by performing employer health checks and providing advice and guidance during a HMRC review.
 Managing tax compliance following the pandemic, National Audit Office, 16 December 2022
Approval Code: NTAJ14012302
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.