BENEFITS COMPLIANCE - 18.05.2018

HMRC targets benefits and expenses

A new approach

Historically, during an employer compliance review, HMRC would select one or two months of a closed prior tax year and ask to drill down to some sample expense claims. Its new approach acknowledges that technology can now allow it to interrogate vast amounts of transactional data from various employer systems. The large businesses that have been approached have been told that they will be required to supply data from their expenses and benefits systems and their general ledger. HMRC will then be able to identify exceptions that it can then pursue during an on-site visit. This visit is likely to comprise a multi-disciplinary team with employment tax, VAT and corporation tax specialists. As well as reviewing the results of the transactional analysis they will want to see expense policies, processes and guidance to perform a full systems and process audit.

Pro advice. You should follow the same approach and create a multi-disciplinary team which can review current processes and policies and assign ownership for any changes that are identified or disclosures that need to be made to HMRC.

What are the risks?

This new approach means that HMRC is attempting to build an understanding of the business’ expense and benefit processes, employee travel and spending patterns of employees and how these feed into P11D , PSA and VAT reporting. Where it identifies issues, it will be able to issue demands for historic underpayments across PAYE, NI and VAT.

Senior involvement

Any business that is subject to the Senior Accounting Officer (SAO) regime will be aware of the personal accountability that the SAO has for the annual sign off that the business’ tax affairs are compliant. This has become even more serious for businesses in the private sector since the introduction of the offence of facilitating tax evasion. The Criminal Finances Act 2017 now holds corporations and partnerships criminally liable when they fail to prevent their employees, agents, or others who provide services on their behalf, from criminally facilitating tax evasion. So, it’s no longer only an offence if you’re aware that taxes are not being correctly reported, the senior team now has to take active steps to ensure that the correct amount of tax is paid over to HMRC.

Practical steps?

It’s the perfect time of year to initiate an expenses and benefits review. Work through this step-by-step process:

1. Are you certain there aren’t any items on expenses claims that are taxable? If so you’re saying you’re certain everything is a qualifying business expense, i.e. “wholly, necessarily and exclusively” incurred whilst people carry out their job role with any private use insignificant or prohibited.
2. Are you sure all your expense claims are sufficiently detailed for you to be able to say yes to step one?
3. Is someone fully accountable for monitoring and updating all expenses and benefits policies each year to ensure they’re legally compliant?

Pro advice. If these steps have left you wondering what HMRC would make of your policies and processes, watch out for our articles ahead of the P11D reporting deadline in July.