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HMRC Cracks Down On Payroll Tax Fraud

by Robert Lee, Tax-News.com, London

22 October 2015


The number of investigations opened by HM Revenue and Customs (HMRC) into suspected UK payroll tax fraud increased by 13 percent in the last year, according to research by international law firm Pinsent Masons.

HMRC opened 2,488 Employer Compliance Reviews in 2014-15, compared with 2,197 in 2013-14. These investigations are intended to target businesses intentionally committing payroll fraud by under-paying employment taxes.

According to Pinsent Masons, the reviews represent an opportunity for "easy wins" for HMRC, due to the number of genuine errors made by employers when calculating employment taxes. Senior Associate Chris Thomas said: "While it appears that HMRC is getting tougher on payroll tax fraud, what often ends up happening is that it picks the low-hanging fruit of employment tax errors. Employment taxes are a particularly complex area where the tax liability can be affected by a huge range of considerations, and HMRC knows that employers are likely to have made mistakes."

Pinsent Masons noted that HMRC will often levy fines of between ten and 30 percent of the tax owed, even in cases of genuine error. The Department may levy fines of up to 60 percent if it believes an employer has attempted to evade or under-report tax liability.

"Areas such as internationally mobile employees can prove challenging for employers to calculate the amount of tax to be paid. It can be difficult to determine how much tax needs to be paid in each jurisdiction, and employment tax rates will vary from country to country," Thomas added.

He said that the process is prone to errors, as communication can be disjointed between the departments responsible for employment tax in each country. In addition, it can be difficult to calculate the tax owed on termination payments, because they comprise a range of elements that could be taxable at different rates.

"The tax director of a business might not have the capacity to be in day-to-day control of how employment tax is handled. Additionally, the responsibility for paying taxes often falls to staff in departments such as Human Resources, who might not have the specialist knowledge to deal with complex tax arrangements," Thomas explained.

TAGS: compliance | tax | business | tax compliance | law | employees | United Kingdom | payroll | tax authority | tax rates | HM Revenue and Customs (HMRC) | revenue statistics | regulation | HM Revenue and Customs (HMRC) | Compliance | Employment | Tax | Tax Evasion

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