Where whole caseworking is not operated, the accounts inspector is notified of the result of each employer compliance review. If the review has indicated accounts irregularities (e.g. large unvouched round sum allowances or inadequate records as regards cash control), these will be highlighted in the report to the accounts inspector with a view to the case being taken up as an enquiry (the ultimate settlement of which would include the employer compliance settlement). Employer compliance staff are themselves not permitted by the Board to investigate potential accounts irregularities as they are not trained to do so.
In the new office structure which has been introduced, accounts inspectors and employer compliance staff are normally located in the same building, making effective liaison easier and with less likelihood of, as has been alleged by HMRC, accountants sometimes playing off one investigator against another. Often, a liaison officer is appointed in the accounts office to handle day-to-day contacts with employer compliance and regular meetings are officially encouraged.
‘Close liaison with the Accounts Inspector is an essential feature of employer compliance work in all types of office, as investigation of directors’ affairs is often inseparable from examination of company’s accounts.’ (ECM 6002)
The liaison between accounts inspector and the employer compliance unit also results in cases being taken up for an employer compliance review as a result of information from the accounts inspector pointing to PAYE irregularity. Inspectors are instructed to consider, at the time of screening, debits in the profit and loss account which indicate potential PAYE irregularities, e.g.:-
Inspectors are also under instruction to report to the employer compliance unit anything they come across in the course of an accounts enquiry which indicates PAYE irregularities.
The sort of information which the accounts inspector would be expected to pass to the employer compliance unit would be:-
Compliance officers are instructed to report to the accounts inspector any evidence of irregularity which might suggest that the employer’s accounts are unreliable.
‘This could be where:-
The Employer Compliance Manual at ECM 10160 provides officers with a checklist of some of the indications of evasion of tax which would merit such a report to the accounts inspector:-
‘[This] is intended only as a guide [and] is not exhaustive …
Does the workforce on the books look like the workforce on the premises?
Are there indications of shiftwork (and possibly an additional workforce paid through a second set of books)?
Does the business look prosperous?
Have there been any recent improvements or alterations to the premises?
Is the apparent lifestyle of directors in keeping with the level of remuneration?
Are any directors paid less than employees?
Do the directors control the wages records and payments?
Is the wages clerk related to the directors?
Are cash wages paid?
Are significant round sum payments made? (Even if you are satisfied that these represent genuine business expenditure, large amounts paid without supporting documentation point to a lack of control).
Is there a large casual wages charge (that is, large relative to the size of the business)?
Are wages paid to domestic staff or gardeners?
Do spouses or other relatives receive excessive wages?
Is there the opportunity to earn extra income, for example farmers renting out spare fields or machinery?
If the main income is by cheque, is there a subsidiary business generating cash?
Are the directors personally in control of cash?
Do the directors keep control of the cash/petty cash/cheque books?
Is there a poor system of cash control?
Are there cash takings where you wouldn’t expect them?
If there is a high level of cash takings, is it all banked?
Is cash on hand kept at a steady level or does it fluctuate?
What was the cash on hand figure at the beginning and end of the year?
Are the records inaccurate, not up to date, written up after a period from memory and not from vouchers and receipts?
How often is the cash book balanced?
Is personal expenditure paid by the business?
Is there expenditure not supported by receipts or vouchers?
Is there evidence of altered or false invoices, that is where Special Compliance Office (SCO) have not taken up the case?
Are unusual benefits provided (for example yachts, caravans, holiday homes, trips abroad, fines paid, school fees, upkeep of animals, prizes awarded by third parties)?
Are round sum entertaining expenses paid?
Are any company vehicles rarely used for business (including those used by relatives)?’