Inland revenue paye investigations – how they work

Introduction

An Inland Revenue PAYE investigation can be stressful, time consuming and very costly.

This article explains the process and how to prepare.

Preparation

The best course of action is to be prepared. Thus, it is strongly advisable to take action before the Revenue reviews your records.

Experienced auditors “pick” their own cases with the intention of getting a “result”. They will already know a lot about your business having reviewed your records.

Initial letter

You will receive a letter from the Revenue to arrange a date for your records to be inspected. The Revenue does have powers to call without notice, but this is extremely rare.

First meeting

They will complete a questionnaire which has around 100 questions relating to payroll, expenses paid, benefits provided and a check of the Purchase Ledger.

This will help them understand the business and possibly highlight areas where errors could be found.

What will they be looking for?

• Payroll
  • If computerised, are tax and N.I. calculations correct;
  • Are payments missing from the payroll;
  • Are correct tax codes used;
  • Are correct deductions shown on End of Year Tax declarations?
• Expenses
  • Are expenses genuine business expenses;
  • Are expenses paid to anyone not on the payroll (e.g. a self-employed contractor);
  • Are expenses claims correct (e.g. mileage records);
  • Does the business pay for any personal directors` expenses on their personal credit card?
• Benefits
  • Are correct benefits being declared to the Revenue (e.g. company cars);
  • Are other individuals receiving benefits not declared (e.g. is the partner of the main director using a company car, even though they are only pay a small wage each month);
  • Are any of the director’s personal bills or credit cards being paid and not declared;
  • Has correct N.I been calculated on benefits?
• Purchase Ledger
  • Are there any payments to contractors who may be “disguised employees”;
  • Are there personal payments which have not been declared to the Revenue;
  • Are there any personal benefits not declared to the Revenue.

If errors are found

The Revenue will discuss errors after the records have been inspected and ask for reasons why these errors occurred. They may also ask for records or payments for earlier years – they can go back 6 years.

You will be informed that there will be additional interest on any settlement amount and possible penalties.

Settlement

The Revenue will confirm in writing any amounts due which you can challenge.

After disputes have been settled, the Revenue will confirm the total amount of Tax, National Insurance and Interest due. You will be asked to make a total offer to include these figures and a monetary penalty.

The Revenue will already have a figure in mind and if yours is very close, they will probably agree.

A formal document will be sent to you to sign to agree to the amounts due. (If you don’t sign this voluntary agreement, the Revenue can raise a formal charge for the amounts on the computation).