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HMRC clamping down on employment taxes


Posted on 19 November 2015

The taxman has been clamping down on various sectors and groups of people over the past years, but one of the most recent areas targeted by HMRC identified as having a lot of “low-hanging fruit” is employment taxes.

According to latest figures, HMRC opened 2,488 'employer compliance reviews' in the year ending 31 March 2015, compared to 2,197 over the previous year. In cases where HMRC believe employers have intentionally attempted to under-report or evade taxes, fines of up to 60% of the tax owed can be issued.

Employment taxes can be extremely complex and the responsibility for paying these taxes often falls to staff in departments such as payroll or HR who may not have the specialist knowledge required to deal with these tax arrangements. With HMRC even fining employers in cases of genuine human error, now is the time to ensure your house is in order.

In my experience, companies are most likely to make mistakes in relation to termination payments (including redundancy pay-outs, payments settling a claim and payments in lieu of notice), treatment of expenses and benefits (particularly when directors’ loan accounts are involved), where internationally mobile employees are paid, and, where questions of employment status are involved.

I’d strongly recommend for all employers to seek professional advice from an employment tax specialist before they are targeted by HMRC. Employers can be fined unless they can prove “reasonable care” was taken to avoid any errors which is often very difficult to do. However, experience does show that engagement with HMRC and a commitment to identifying and addressing areas of weakness could often minimise penalties.

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