HMRC ‘gets to know’ customers to facilitate real time working

Income Tax and National Insurance now account for more than 50% of Government revenues so it’s not surprising that HM Revenue & Customs (HMRC) is showing increased interest in Employer Compliance, specifically the operation of the employment taxes and the provision of benefits.

The approach being taken by HMRC, as with other taxes, is real time compliance in accordance with the OECD wide initiative.

HMRC’s ‘Know Your Customer’ initiative demonstrates real time working and a move away from traditional historically focussed PAYE audits to real time risk-based assessments. By analysing tax management and associated controls, HMRC are focusing on understanding the business and the associated workforce issues. Although PAYE and NIC activity at HMRC has historically lacked resource ‘Employer Compliance Champions’ are being recruited from industry to support this drive.

The Know Your Customer initiative has seen HMRC begin to contact the largest 2,000 employers to analyse Employment tax governance. HMRC is placing emphasis on the strategy for recruiting, rewarding and retaining its workforce, the underlying systems and the robustness of supporting assurance and control procedures, including:

• expenses and details of the process maps that support their audit
• benefits, any salary sacrifice communications and the process maps governing P11D completion
• incentive arrangements, bonus and share plans and the processes governing tax deductions
• international assignments and the processes for tracking short term business visitors
• redundancy, relocation and termination policies and practices; and
• communications governing the provision of pension benefits.

You need to make sure that you are prepared now with a well-connected approach to Employment tax management. HMRC may ask to speak to Payroll, Finance and Tax but also representatives from HR and Reward who can explain the policies and practices around reward, retention, incentives and recruitment. You should engage with colleagues in your HR and Compensation & Reward teams, to ensure that the tax treatment of your reward and benefits programme is fully understood.

We also recommend reviewing existing policies and procedures that you have in place governing the above. Policies should then be updated for legislative developments and best practice. The importance of having policies, processes and controls in place cannot be understated and we would recommend that these are well documented as appropriate. Finally don’t forget a robust methodology for testing what actually happens in practice.

I lead PwC’s Employment Solutions and Tax Risk Assurance practice in the South East so if you would like to know more about how PwC can help you address the above please do get in touch.

Debra De'Ath

+44 (0) 1895 52 2035/ [email protected]