PAYE healthcheck – overview

By Tolley in association Susan Ball

The following Employment Tax guidance note by Tolley in association Susan Ball provides comprehensive and up to date tax information covering:

  • PAYE healthcheck – overview
  • Why is a PAYE / NIC healthcheck needed?
  • 10 reasons why an organisation should consider a PAYE healthcheck
  • Background – relationships with HMRC
  • HMRC compliance checks
  • High risk areas

Why is a PAYE / NIC healthcheck needed?

A PAYE healthcheck is a review of an employer’s payroll and benefit procedures to ensure that they are delivering the right results in terms of compliance with HMRC’s rules on tax and NIC on employees’ pay, expenses and benefits. It is designed to minimise the risk of interest and penalties and to improve compliance.

Some organisations shy away from the idea of having a PAYE / NIC risk review as it is often seen as being an unnecessary cost. Other organisations take the view that if there are problems with their payroll and benefit procedures, these will surely be identified by their auditors as part of the annual audit process. However, a detailed examination of the client’s payroll, benefits and expenses is not a requirement of an audit. Therefore employers should not assume that a lack of comment from their auditors must mean that their PAYE procedures are in order.

Although a major item of expenditure for most organisations in the profit and loss account, the payroll itself is unlikely to be the source of any major discrepancies from a tax or National Insurance perspective. Once an item is included in the payroll, more often than not the appropriate deductions will be accounted for and any errors are likely to be insignificant and certainly not material for audit purposes. Of course, this does not prevent the payroll from being a major source of employee fraud, which a PAYE healthcheck may help uncover, as it should identify flaws in processes that could allow fictitious employees to be included on the payroll or for payments to continue to be made to employees who have left.

Some of the problems that create the greatest risk are often not on the payroll. Workers paid gross on a self-employed basis, expense payments that prove to be taxable and

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