HMRC PAYE, CIS and National Insurance Contributions Compliance Checks

What does it mean when an Employer or Contractor receives a letter from HMRC advising that they want to carry out a review of the PAYE, CIS and National Insurance Contributions (NIC) records?

HMRC will be looking at the records and systems in place to support the operation of PAYE/NIC/CIS and checking that business expenses have been appropriately incurred and accounted for, with any tax and National Insurance liabilities correctly addressed. In addition, the compliance check could review the employment status position of workers engaged by the business to ensure that the correct tax and NIC position is being observed. From April 2021, this will also potentially include the correct engagement of Personal Service Companies (PSCs) under the off-payroll and IR35 legislation.

Many employers believe that these checks cover only the operation of PAYE/NIC and that they need only to provide details of the payroll records – this is not true. Any records relating to the payment of expenses and benefits will also need to be made available. For example, this could include expenses claim forms and receipts, company credit card receipts and statements, petty cash records and company car and van information. Where the business is in the construction sector, HMRC will be looking at the operation of the CIS scheme, including the level of material costs claimed by sub-contractors.

If errors are identified, additional tax/CIS and National Insurance liabilities can arise on which both interest and penalties may also be applied. Information provided by the employer as to how and why the errors occurred will have a direct influence on how the penalties are viewed and calculated.

What happens if they find something wrong?

Serious failures can result in a sub-contractor losing its gross payment status (if held). Depending on the nature of the issues identified, it may be that further information or clarification is still required before it can be established if there is any additional liability to address. This will usually take place via subsequent correspondence following the initial review of records.

What happens if additional tax and NIC is due?

The tax and NIC liabilities will be assessed and requested from the employer. Usually, the first request will be on an informal basis with an expectancy that agreement can be reached and, if this is the case, settlement will usually take place via a ‘settlement contract’. The settlement will include the duties (tax and NIC) on which interest and penalties will also be considered.

If agreement cannot be reached, then HMRC will look to formally pursue the liability via the issue of Regulation 80 Determinations for the PAYE tax and Section 8 Decisions for the NIC. Tax due on any benefits provided will be transferred to and pursued via the individual employee.

How can The Guild help?

GuildHUB has in-house ex-HMRC Employment Compliance and CIS experts who can help you with an HMRC enquiry, whether at the outset of the review or at a point where HMRC demands are escalating.