Every now and then it happens – business owners receive a letter that often chills them to the bone (even when they are complying completely with the letter of the law)… It’s your turn for a PAYE review, and HMRC is going to carry out an audit on your company.
It’s okay though. As long as you have everything up to date, and are doing everything you are supposed to be, you’ll come through it unscathed. We understand it’s still a trying time, of course; not least because it takes you away from the real business at hand – your work. But there are ways to prepare for a review like this that will make the day itself much easier to deal with. Don’t just assume that because you’re doing everything by the book you can just go ahead without preparation, because that’s how time is wasted!
A PAYE review by HMRC can look back over several years. And it’s not exactly just the PAYE that the inspectors will be checking; if a problem is found with your PAYE records, that means the inspectors will want to look more closely at every aspect of your company’s finances, which is an even bigger headache.
The first thing to do to help out when it’s your turn for a PAYE review is to have kept good records. We understand that it can be time consuming, dull, it may not even feel that important at the time, but really, if you keep good records from the start (or even begin keeping better records now), then when the inspector comes to visit you can relax a little know that he or she will not have to keep asking you questions about where they can find whatever it is they need to look at (assuming you have whatever it is to hand anyway). Keep everything. File it all in an order that makes sense. Leave it somewhere easy to access (ie not in a complicated safe or in some lockup somewhere; it needs to be in your office).
Another good idea when it comes to PAYE – and everything else, come to that – is to pay the remittances on time. If you can’t, let HMRC know and explain the situation. Payment plans are better than building up arrears when it comes to Her Majesty’s Revenue and Customs. Plus if you pay on time all the time, your name is less likely to come up when it’s time for an audit.
The same is true for end of year returns. Get those P11d forms in on time, and make sure you’ve got them right. If you’re not sure, ask your accountant; the good ones will help you out, just like we do. If the forms are late, or disappear completely, you’ll most likely get a visit, especially if that is combined with late payment of PAYE.
Mileage records are also checked during this kind of review. Company cars are the bane of many a company owner’s life when it comes to keeping records of private mileage, fuel spend, and so on. They will be meticulous. If they spot that any of the fuel has been paid for privately, there will be a problem, and all sorts of nasty tax implications.
Another contentious issue is that of subcontractors. Are they really subcontractors? Are you sure they aren’t employees under another name? It’s important that they’re not because HMRC will know… And you (and they) can be in trouble regarding their tax situation. Not only that, but you will be fined, and asked to pay the PAYE that should have been paid when you ‘employed’ them.
The biggest issue that usually comes up during a PAYE audit is the money spent on entertaining. Some of it is taxable (rewards, reimbursements, meals where only staff are in attendance), and some of it isn’t. It’s complicated, and many a business owner has fallen foul of the rules by accident. So if you’re not sure, ask your accountant before submitting any kind of paperwork (although do ensure that you leave time so that you don’t end up sending it all in late). That way, the audit, when it comes, will be far less painful than it otherwise might have been.