Is your law firm exposed to a PAYE Compliance Risk? By sponsor Francis Clark

Is your law firm exposed to a PAYE Compliance Risk? By sponsor Francis Clark

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For all law firms the biggest expense is people and more specifically payroll costs. There are a large number of rules and regulations that surround the management of a payroll system and we have seen an increasing number of law firms experiencing challenges with keeping up to date with the requirements in this area.
 
Nationally, we have also seen an increasing number of inspections being undertaken by HMRC to carry out a review of the PAYE and National Insurance Contribution (NIC) records.
 
 

What happens during a HMRC inspection?

  

During such inspections HMRC look to assess whether the records and systems maintained support the operation of PAYE/NIC, that business expenses have been appropriately incurred and accounted for and that any tax and NI liabilities have been correctly addressed. In addition, the compliance check will often review the employment status position of workers engaged by the business to ensure that the correct tax and NIC position is being adhered to.
 
Many employers believe that these HMRC checks cover only the operation of PAYE/NIC and that they only have to provide details of the payroll records. This is not true. Any records relating to the payment of expenses and benefits will also need to be made available. This for example, could include expense claim forms and receipts, company credit card receipts and statements, petty cash records and company car information.
 
If errors are identified by HMRC, additional tax and NI liabilities can arise on which both interest and penalties may also be due. Information provided by the employer as to how and why the errors occurred will have a direct influence on how the penalties are viewed and calculated.
 
Where are the common risk areas for law firms?
 
 
• Subsistence payments to employees during training and other work activities.
• Motor expense arrangements.
• Place of work and travel between home and work arrangements.
• Entertaining benefits.
• Access to legal services of their firm at below cost.
• Rewards and bonuses paid outside the payroll.
• Self employed consultancy contracts.
 
2016 changes to reporting benefits for employees
 
 
Up until April 2016, employers who pay/reimburse allowable expenses to employees had two options in terms of their treatment. These were to report the expenses on form P11D and the employee then had to claim their tax relief from HMRC or the employer held a dispensation, which is an agreement with HMRC that let them pay those allowable expenses without reporting them. In law firms it was common for expenses such as professional subscriptions to be covered by these dispensations.
 
From 6 April 2016 HMRC has replaced dispensations by introducing an exemption from paying tax and NIC on qualifying paid or reimbursed expense payments.
 
One of the major changes with the introduction of this new legislation is that it will now be a statutory requirement for employers to operate a system for checking employees’ expenses claims. The system has to check that the employees are actually incurring expenses; and that those expenses are allowable.
 
 
Compliance health check
 
 
PKF Francis Clark has an internal PAYE/NIC and Expenses/Benefit compliance team who can provide our law firm clients with health checks on employer compliance matters, reviewing their systems and record keeping processes ensuring that those systems are robust enough to meet the expectations of HMRC.
 
If you feel this is something that you may benefit from, please get in touch.
 
This publication is produced by Francis Clark LLP for general information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of production), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.
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