Tax & Accounting News
HMRC Inspections
13/03/2009
In the current economic climate, the last thing that any business wants is to fall foul of HM Revenue & Customs (HMRC) during a PAYE or national insurance inspection, so the following tips may be helpful
Keep all records and information for payroll, benefits and related matters for six years after the year end. You are entitled to dispose of them after three years, but HMRC can go back six years in investigating business accounts.
Make sure that you files are up to date, complete and accurate on:
- PAYE deduction working sheets
- employee codes
- reconciliation of records with your P35 annual statement
- treatment of new employees and leavers
- cash payments where PAYE has not been used
- expenses payments, employee benefits and the P11 or P9D forms relating to these
- compliance with any dispensations, subcontractors’ rules and national insurance regulations.
Common problem areas that may attract HMRC’s attention include:
- gross payments to casual staff
- payments to people claiming they are self-employed
- lump sum expenses
- private petrol
- spouse’s travel and subsistence
- travel to work from home/work to home
- trips for purposes other than purely business, e.g. trade fairs
- home telephone
- entertaining
- expenses for using your home as an office
- goods and services provided free or below market value
- lunch expenses
- clothing
- accommodation
- work carried out at an employee’s home
- medical expenses.
HMRC is applying the rules on casual labour very strictly. Employers must complete a P46 if they pay £1 a week or more to a casual worker without a P45 who signs a declaration that this is their only or main employment.
No PAYE or national insurance need be deducted unless the weekly payment is more than £105 but records must be properly maintained as HMRC is charging employers for tax and national insurance on these payments where P46 forms have not been completed.
Annual P11D forms must include all relevant expenses and benefits for the tax year to 5 April, including travel, subsistence and entertaining, even if these are incurred on business, unless you have an HMRC dispensation.
Accurate and complete records for business mileage must be kept, which is particularly relevant where a company car arrangement excludes benefit in kind arising on fuel.
National insurance problems are likely to arise if you not properly deal with expenses and benefits paid incurred in an individual’s name but paid for or reimbursed by their employer.
Most inspections uncover some discrepancies and HMRC will usually calculate tax and national insurance “lost” going back six years, plus the current year, extending the period if they consider deductions have been deliberately withheld. They may also seek penalties, depending on the seriousness of the discrepancy and the co-operation received from the employer.
If you would like further advice on any of these issues, please contact us.
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