PAYE Investigations

Typical triggers include employee complaints about incorrect codes or deductions, irregularities in Real Time Information submissions, patterns like high levels of expenses paid to directors, tips from ex-employees, operating cash payroll or inconsistencies in payroll compared to company accounts. Random selection is also used to target sectors like construction for PAYE inspections. The aim is to identify systematic payroll errors or fraud.

Initial requests will be made for data like employee names, NI numbers, wages, deductions, P11Ds and specific periods may be selected to review. Face-to-face or virtual interviews will likely follow, discussing your processes, controls and record keeping. HMRC will evaluate if PAYE rules are being adhered to and may expand the scope of their review if issues emerge. Ensure to cooperate fully while safeguarding your rights.

 Innocent errors typically lead to a voluntary disclosure to correct mistakes, with interest and sometimes penalties on the underpaid tax. Deliberate errors or tax evasion attempts could prompt further investigation and serious fines. Employment intermediaries like umbrella companies are at particular risk of penalties for false reporting. Keeping organized digital payroll records is advisable to demonstrate compliance if inspected.

Lacking professional payroll and accounting advice increases your risks of inadvertent PAYE errors that could lead to penalties down the line if eventually investigated. Common problems when handling payroll yourself include incorrect tax codes, NICs calculation mistakes, improper expense payments to directors and poor record keeping making correction of errors harder.

Yes – if you disagree with HMRC’s findings or feel they have misinterpreted the facts, you can request an internal review and then escalate by appealing to an independent tax tribunal if still unsatisfied. New evidence or demonstrating alternative interpretations of regulations may overturn original conclusions. But an appeal process can take significant time and tax specialists are advisable.

Potentially – if systemic payroll errors were identified for past years already beyond HMRC enquiry window, consider voluntary disclosure for more recent open periods, showing willingness to put things right going forward. Taking the initiative looks better than waiting for HMRC to uncover further issues through future audits. The penalties may then be restricted to interest only.

Your accountant may have included some normal tax provisions. If not you may be able to make adjustments in your current financial year. If you are loosing any tax reliefs, you may need to amend accounts and resubmit to HMRC and companies house.