Despite the onerous responsibility that the law places on employers to operate PAYE correctly and to comply with the regulations covering the making of returns in respect of benefits and certain other expenses paid to their employees, few realise how extensive HMRC’s powers are and how costly a PAYE settlement can prove, even where the irregularities have arisen as a result of wholly innocent errors. In view of the increase in the number of employer compliance reviews, the adviser should ensure that his clients who have employees are aware of their responsibilities under the PAYE regulations.


The PAYE/NIC and subcontractor schemes are governed by the following legislation:-







To ensure that the employer is operating PAYE correctly, the legislation empowers HMRC to inspect any records relating to the payment of remuneration to employees and directors, and to the deduction of income tax and NIC from that remuneration. Such records include:-


    • The cash book, petty cash records and vouchers, cheque book stubs showing petty cash withdrawals, expenses claims forms, together with supporting vouchers, etc.;


    • All records which relate to the payment of wages and salaries, including time sheets, clock cards, contracts of employment, etc.;


    • Ledger records; and


    • Any forms P46 which have not been sent to HMRC.




The documents inspected will not be restricted to those relating to the payment of remuneration and expenses. If the employer provides any benefits to his employees, details of these will be required to enable HMRC to decide if the benefit is taxable and, if so, the amount of the benefit.


When making clients aware of their PAYE obligations as employers, the adviser should also warn them that they will remain liable for unpaid tax and NICs in most circumstances.


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