I recently attended an ‘Employer Compliance’ seminar for professional accountancy bodies. It was run by an experienced tax consultant with 23 years experience as Senior Tax Officer for the HMRC.
Employers have a legal obligation to operate PAYE on payments to employees above the National Insurance Lower Earnings Limit (LEL). Employers are also obliged to pay over to HMRC the PAYE Income Tax and Class 1 NIC’s deducted.
As well as covering all the key HMRC deadlines and records regarding the above to be kept by any employer, the seminar also covered how to clearly identify the employment status of any workers. This is and probably always has been a top target for HMRC and there appears to be a lot of reviews taking place at the moment. The risk is virtually ‘one-sided and with the employer’.
What are some of the risk areas for Employers who treat individuals as self-employed and get it wrong?
Failing to operate PAYE and deduct Class 1 NICs – this can be an expensive mistake.
Using Casual labour and Part-time employees, perhaps because there is no authority to increase the ‘head count’, must also be dealt with properly.
What happens if the employment status of your workers are reviewed by HMRC?
HMRC Compliance officers will come with a checklist to test the employment status of individual workers. HMRC Compliance officers will use the Employment Status Indicator (ESI) tool. Employers need to think about using this tool, or at least carrying out other checks.
Using HMRC’s online ESI tool enables you to check the employment status of an individual or a group of workers – that is if they are employed or self employed for tax, NI contributions or VAT purposes.
ESI tool is completely anonymous, so no personal details about the worker or engager are are requested.
Input accurate information and HMRC says we can rely on the ESI outcome. Top tip is to keep copies of all relevant documentation or information relied upon to complete the ESI, as well as a print out of the Enquiry Details Screen showing the engagement details and the replies to the questions asked, alongside a printed version of the ESI result.
N.B ESI is NOT relevant for office holders, IR35 businesses or Agency workers.