HMRC payroll tax probes yield £705 million

Payroll is expected to remain a key focus for the foreseeable future

Payroll tax probes by Her Majesty’s Revenue & Customs (HMRC) have netted £705 million in additional payments, according to Pinsent Masons.

The government agency collected an extra £322 million from small-to-medium enterprises (SMEs) and £383 million from large businesses over the last financial year as a result of its investigations.

Paul Noble, tax director at the law firm, said: “Payroll tax remains a focus area for HMRC, and it is unlikely that they will take the spotlight off any time soon.”

But he added it was “interesting” that nearly the same amount of money was retrieved from SMEs as big business, which “may indicate a disproportionate allocation of resources by HMRC against smaller employers”.

Another area of focus has been so-called “disguised self-employment” and possible abuses by intermediary labour providers. A common vehicle for such activity is to set up an umbrella company, which employs contract workers.

Although many operate legitimately, some indulge in tax avoidance by paying contractors the minimum wage and then supplement their income by abusing travel and subsistence tax relief rules.

New legislation was introduced in April 2106 to try and tackle the issue by treating workers at umbrella companies as being employed by the company that engaged them. Moreover, each location where they work is treated as their normal workplace, thus restricting the amount of expenses that can be claimed.