PAYE healthcheck ― overview

Produced by Tolley in association Susan Ball

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

  • PAYE healthcheck ― overview
  • Why is a PAYE healthcheck needed?
  • 10 reasons why an organisation should consider having a PAYE healthcheck carried out
  • Background – relationships with HMRC
  • What can an organisation do to achieve a low risk rating?
  • Senior Accounting Officer (SAO)
  • HMRC compliance checks
  • High risk areas

PAYE healthcheck ― overview

Why is a PAYE healthcheck needed?

A PAYE healthcheck is where an employer asks a third party, often an accountancy firm providing tax advisory services, to under-take 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 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, particularly as the audit concept of an error being ‘material’ does not apply in tax. 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 NIC 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

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