HMRC gets inventive – 16% jump in compliance take from investigations into payroll and expenses

HMRC continues to be inventive in its hunt for extra tax revenue – always searching for new areas to investigate. One recent trend we’ve spotted is an increasing crack down on payroll and expenses.

Its investigations in this area stretch from payment of self-employed contractors through to business expenses such as hotel bills which HMRC argues are hidden perks that need to be taxed. This new area of focus has put a growing number of businesses and individuals at risk of inquiries from the taxman. The amount of additional tax collected by HMRC through investigations into payroll and expenses increased 16% last year to £819m, up from £705m in 2015/16.

Investigations into payroll and expenses could cover some pretty normal issues such as staff rewards, travel to and from work, and even health club subscriptions. These detailed inquiries into what can seem like small ticket items sit alongside broader brush inquiries into areas such as Corporation Tax and VAT.

A key area of focus for HMRC has been the increasing use of self-employed workers by businesses in the UK. HMRC believes the incorrect classification of workers by businesses means it is losing out on National Insurance Contributions each year.

To combat this, HMRC has set up specialist Employment Status & Intermediaries teams to help it with its payroll investigations into businesses.

HMRC is increasingly seeing businesses as a more productive revenue source than individual taxpayers. By targeting the payrolls of businesses, HMRC can investigate the affairs of multiple taxpayers at once – several birds, one stone. Many of the businesses targeted by HMRC in its crackdowns are SMEs. These businesses are often viewed as an easier target by HMRC as they are unlikely to have the in-house resources to close down or limit tax investigations.

Businesses need to be proactive and ensure that any discrepancies in their payroll or expenses can be accounted for. Failure to do so could result in costly investigations.