How to Survive a PAYE and NIC Inspection

HMRC review the records of about 50,000 small businesses each year. Are you ready and compliant? However confident you are that your records are complete and well maintained, a PAYE/NIC inspection might still catch you unawares. The introduction of Real-Time Information provides HMRC with more targeted information on which businesses they might investigate in order to increase the tax yield.

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Here are some pointers to help you:

RTI for PAYE

Make sure your RTI submissions are complete and made within the prescribed deadlines. You are required to retain all records and information relating to payroll, benefits, etc. for three years after the tax year-end. Keep these records for six years, the period for which HMRC has powers to investigate your business accounts.

You are now more likely than ever to be subject to a full review of your compliance systems and procedures, so don't leave anything to chance.

Make sure you are not vulnerable to the risk of PAYE/NIC liabilities, penalties, and problems - sort them out now.

HMRC visit will be at your business premises and is likely to check:

• PAYE calculations for completeness and accuracy
• RTI submissions
• Correct use of employee codes
• Correct treatment of new employees and leavers
• Cash payments where PAYE has not been operated
• Expense payments, employee benefits, and their correct disclosure on forms P11D or P9D
• Compliance with terms of any dispensation
• Compliance with sub-contractors' rules
• Compliance with NIC regulations

PAYE Tax problem areas

The following are the main areas where problems may arise:

• Gross payments to casual employees
• Payments to alleged 'self-employed' persons
• Lump sum expenses
• Private petrol
• Spouse's travel and subsistence
• Travel to work from home and vice versa
• Trips for purposes other than purely business, e.g. trade fairs, golf, social outings
• Home telephone
• Entertaining
• Expenses for use of home as an office
• Club subscriptions
• Goods and services provided free or below market value
• Meal expenses and lunches in particular
• Clothing
• Accommodation
• Work was undertaken at an employee's home
• Medical expenses

Casual labour

Whenever you employ casual labour you must be sure to take great care. Since the introduction of RTI, it is recommended that you should tackle PAYE for casual and short-term employees in the same way as for permanent staff. This includes notifying HMRC of their starting and leaving details when anyone is employed for a week or more.

Whether or not tax or NI is payable, you must keep proper RTI records of payments and persons paid (including address, and, ideally NI number). You must also be satisfied that anyone you employ (even on a short-term basis) has the right to work in the UK.