HMRC collected £705m in additional tax through investigations into companies’ payroll taxes over the last year according to research by international law firm Pinsent Masons which indicates SMEs are a particular focus of scrutiny
Of the total, £322m was collected from SMEs via the work of the wealthy and mid-sized business compliance and individuals and small business directorate in relation to employer compliance. The remaining £383m was collected from large businesses via the large business directorate in relation to employer duties.
Pinsent Masons says that HMRC have been cracking down on businesses across the board, with a focus on what it views as disguised self-employment and possible abuses by intermediary labour provider businesses, or ‘umbrella’ companies which employ contract workers directly, invoice businesses for work they undertake, and pay those workers as employees, or self-employed.
In April 2016, new legislation was implemented to treat workers from umbrella companies as employed by the company who engaged them and treats each location they work at as their normal workplace. This restricts the expensing of travel and subsistence for workers from umbrella companies.
Pinsent Masons says that HMRC’s clampdown has also focused on the sports and entertainment industry, with closer scrutiny of Premier League footballers for using offshore companies to underpay tax on earnings through ‘image rights’ in the UK over recent months.
Paul Noble, tax director at Pinsent Masons, said: ‘Payroll tax remains a focus area for HMRC, and it is unlikely that they will take the spotlight off any time soon.
‘HMRC has been working to restrict umbrella companies, and we may see the amount of additional revenue begin to fall whilst they refocus resources to target other areas of perceived avoidance and non-compliance.’
Noble pointed out that the extra tax collected from SME's was nearly as much as from big business, suggesting this could indicate a disproportionate allocation of resources by HMRC against smaller employers.
Pinsent Masons suggested SMEs are often particularly at risk of investigations, with many lacking in-house tax specialists or access to professional guidance, while they are also more likely to take on casual labour or have a more flexible workforce than many larger businesses, which can add to the confusion in determining how to file payroll taxes.
