No matter how diligent you are with your payroll, or how complete you records are, having a letter from HMRC informing you of a PAYE/NIC inspection can still catch you unawares. Make sure that you follow some basic pointers and you will get through to the other side without any problems.
You must keep all payroll records for three years from the end of a tax year. But, HMRC can investigate your accounts up to six years after the tax year ends, so keep them for six years, just in case. With the proliferation of computers, you more likely than ever to be subjected to a complete review of your records, systems and procedures. So be sure that you keep back-ups of everything in a secure place.
As soon as you become aware of any issue to do with your PAYE/NIC sort it out. That way you don't have anything hanging over your head. You don't want a guilty conscience when HMRC visit your business premises.
The officials from HMRC will come to visit you to carry out a PAYE/NIC investigation. They will thoroughly check:
- PAYE deduction working sheets
- Employee codes
- Reconciliation of your P35 with your internal records
- New employees and leavers procedures
- Expense payments and P11D
- Employee benefits and P9D
- Compliance with rules governing dispensation, sub-contractors and NIC regulations
They will also look for any evidence of cash payments, especially where PAYE/NIC would not have been deducted.
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If you pay more than £1 a week employee you will need a P45 or completed P46. If the employment is the employee's only or main employment (or this is what they claim) then both PAYE and NIC must be deducted is the gross payment exceeds the primary threshold. You need to be careful and follow these rules as HMRC will strictly check for this and if the right forms have not been completed, you will be charged the relevant PAYE and NIC on the gross monies paid to the employee. Even if no tax or NIC's would have been paid anyway. On top of this, if no income tax or NIC need be paid, you must still keep accurate records of all payments and expenses paid.
The vast majority of PAYE/NIC inspections will result in the officials from HMRC uncovering some discrepancies. It is usual for HMRC to calculate any 'lost' tax or NI over a time period of up to six years or even more if they feel that any deductions were deliberately withheld. HMRC may also impose penalties if they feel that the seriousness of the discrepancy warrants it. This can be modified by the how co-operative and open the business was during the inspection.
What we can do to help is guide you in ensuring that your records are properly formatted, correctly filled out and going over your records to check for any discrepancies. In the event that you are inspected, then we can help you reach an agreement with HMRC.
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