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Article:

HMRC focuses on staff entertainment

26 July 2019

Staff entertainment is a perennial topic for employer compliance reviews, and it has recently become clear that HMRC is running a new nudge-style letter campaign to ensure employers comply with their reporting obligations and pay the correct tax and NIC.

Where a business incurs staff entertainment costs and claims these through its corporate tax computations, this data is now being identified by HMRC through the corporation tax iXBRL return. By linking this data up with employer records (eg PAYE Settlement Agreements and P11Ds for employees) HMRC has identified businesses that have claimed costs for corporation tax but where PAYE or NIC has not been paid on those costs.

While HMRC will regard businesses in this position as at an increased risk of non-compliance, there are many valid reasons why an expense is deductible for corporation tax purposes without triggering PAYE or NIC costs and obligations for the employer and employee. For example, the cost of providing an annual staff event (such as a Christmas party) is exempt within certain limits, or the costs may be exempt from the benefit in kind rules because they qualify as ‘trivial’.

Promote, prevent, respond

HMRC carries out such letter writing exercises under its ‘promote, prevent, respond’ strategy designed to reduce the need for it to carry out traditional employer compliance reviews while still targeting common compliance issues. The intention is to remind employers about an issue and prompt a voluntary disclosure where the employer recognises that they have made a mistake.

The letters do not demand a response for the employer, nonetheless it is clear that the recipients will be on an HMRC ‘risk list’ and are more likely to be selected for a PAYE inspection in future. For employers that have received one of these letters on staff entertaining (or any other compliance matter), it is clearly sensible to review your procedures and records and, if there are any inaccuracies, take advice on the best way to rectify them with HMRC.

For help and advice on any employer compliance issue, please get in touch with your usual BDO contact or Rob Woodward or Stephanie Wilson.

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