MPs criticise ‘variable standard’ of PAYE administration

The Public Accounts Committee inquiry (22 page / 235KB PDF) into HMRC’s 2017/18 performance revealed that the organisations whose administration of PAYE was not good enough included retailers, food manufacturers and NHS trusts.

HMRC said employers with large workforces and fluid employment practices were particularly at fault, but it told the committee it did not have sanctions it could use to tackle the issue.

Tax law expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law.com, said new rules on employment taxes announced by chancellor Philip Hammond in last week’s Budget were likely to make the problem more severe.

“Poor administration of PAYE by private sector employers is likely to get even worse when they have to cope with the new off-payroll working rules which the chancellor announced in the Budget will be introduced from April 2020,” Robins said.

“Those engaging contractors through intermediaries such as personal service companies (PSCs) will have to work out what the contractor’s employment status would have been if they had been engaged directly rather than through the PSC. For engagers with large numbers of off payroll workers, this is likely to be a complex task,” Robins said.

Robins said bodies such as NHS trusts had been “grappling” with the off-payroll working rules which had applied to the public sector since April 2017.

“Over recent years, HMRC has put more resource into employment tax compliance. The Public Accounts Committee report says that HMRC has no sanctions it can apply for employers whose administration of PAYE is poor,” Robins said.

“However, it does have powers in relation to large businesses, where the individual designated as the senior accounting officer (SAO) has to declare that the company has appropriate arrangements in place for the administration of taxes including PAYE. SAOs can be subject to personal fines if they make an incorrect statement,” Robins said.

Last year figures obtained by Pinsent Masons showed that there had been a 17% increase in penalties issued to company directors for tax accounting failures in 2015/16 compared to the previous year.

The Public Accounts Committee said HMRC had a “daunting task” ahead of it as it prepared for the UK’s withdrawal from the EU, as it worked to implement a new customs declaration service and develop its systems to handle import VAT issues. It is due to take further evidence from the authority in relation to Brexit.

“Our committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers,” the report said.

The committee added that it also had concerns over HMRC’s management of tax relief and fraud in tax credits.