Fishing for a risk?

    HMRC seems to have developed a taste for questionnaires of late. We have seen them used in repayment security checks and now they are coming to the fore when HMRC begins a ‘Check of employer records’.

    Perhaps it is a lack of staff resource, a limited number of experienced staff or tax officers simply being in the wrong geographical location as the HMRC estate is reduced in size to 13 regional centres. Perhaps it is HMRC playing the numbers game to show sufficient checks of employer records are being undertaken and the system policed. Or, perhaps, HMRC has been unable to identify any credible risks, which is why it seemingly now prefers the use of a letter and questionnaire rather than the more common face to face visit by a PAYE Inspector. 

    The tone of the letter and content of the generic questionnaire certainly give the impression HMRC is fishing for a risk.

    The letter

    As you would expect, the covering letter with the questionnaire explains that a ‘Check of employer records’ is underway:

    ‘Every year we check the records of a number of businesses to make sure that they are meeting their tax obligations as an employer. I have now selected your business for a check.’

    The letter goes on to identify the period chosen for checking, before explaining the need to look at the systems the employer has in place in order to meet their obligations as an employer. It continues:

    ‘Firstly, please fill in the enclosed questionnaire so I can understand how your business operates. I also need to see some of your records. When you send back the completed questionnaire, I will phone to speak with ‘the responsible person’ of the business to discuss any additional questions I may have. This is the person who has overall responsibility for ensuring that you meet your PAYE obligations. At this stage, I will tell you what records I need to see.’

    Completion of the questionnaire is then requested in the letter, usually alongside a limited request for supplementary information, such as a copy of the director’s loan account, with all of the paperwork to be submitted by a specified date.

    The questionnaire

    The ‘Compliance check questionnaire’ is broken down into sections, which all involve putting information into boxes. I have listed the sections below for ease of reference:

    • Company details 
    • Directors 
    • Payroll 
    • Expenses 
    • Round sum allowances 
    • Phone/broadband 
    • Entertaining 
    • Staff entertaining 
    • Home to work travel 
    • Home working 
    • Company or business credit cards 
    • Benefits other than cars or vans 
    • Loans 
    • Directors' loan accounts 
    • Car and van fuel 
    • Company cars 
    • Pool cars and vans 
    • Private cars
    • Shares
    • Salary sacrifice
    • Overseas employees


    The questionnaire is eight pages in length.

    Advice    

    All of the sections within the questionnaire have potential tax traps and it is important to keep a record of what is discussed during an employer records check, whether over the telephone or in a face to face meeting.

    The logistics of the initial phone call will need to be discussed with your client. Ideally the phone conversation should be handled as a conference call, whether at your own offices or your client’s premises, at a mutually convenient time for all parties. Notes should be made of the pertinent issues discussed because you will not receive a copy of the telephone conversation minutes made by the HMRC officer. 

    It is always worth remembering that once something is said to an HMRC officer, it cannot be retracted, so clients should be encouraged not to give an answer which is speculative or guessed, or advanced in the spirit of co-operation to appear to be helpful. Answers given should be based on fact and evidence as far as possible. Getting involved in ‘he said she said’ debates are best avoided, with HMRC officers made to focus on actual data rather than false interpretation to an ‘off the cuff’ response.

    We have specialist tax experts in this field, who include Jacqui Mann and Nigel Nordone, both of whom are former HMRC PAYE Inspectors and can be contacted on 0345 223 2727.