Research has revealed that last year HMRC collected £737.3m from investigations into companies over tax avoidance and errors relating to employer compliance – and SMEs in particular have come under fire.
The research shows that SMEs account for over half (£373.4m) of the additional sums collected in tax year 2014/15 – with the majority of these involving issues surrounding self-employment – despite being responsible for only 11% (£96bn) of total UK payroll.
Larger businesses make up 89% of payroll (£726bn), and paid the comparatively low figure of £363.9m in additional payroll taxes and penalties.
In most cases HMRC determined that where businesses considered individuals to be self-employed they should have in fact been counted as employees and therefore these organisations became liable for national insurance contributions. Often the charges imposed by HMRC were higher than what they would have been had businesses initially declared workers as ‘employed’.
Newcastle-based accountancy firm Robson Lailder’s payroll department say that SMEs are more likely to make mistakes with payroll because they are less likely to gain professional tax advice and because they are more likely to take on casual labour or run flexible workforces – making it difficult to determine the correct payroll tax bracket for the employees.
Robson Laider payroll manager Michael Rivett said: “Much of this underpaid payroll tax, which SMEs are being chased for, is largely due to genuine errors. This would suggest that the Government needs to simplify its systems to help small businesses avoid costly mistakes, as SMEs are often unable to pay for expert advice.
“Often companies will use a cheaper alternative to employing full-time staff by outsourcing personnel on a fixed term basis, agency workers or zero hour contracts and its these that are most likely to make errors as they can struggle to determine which ‘box’ their workers fall into when it comes to paying tax.
“The HMRC is improving its ability to identify inconsistencies in tax returns and is using more innovative tests to gauge whether they will consider a person an employee. Whilst the company may ask someone they consider to be self-employed to bill them through a company name, HMRC may look at things like whether they are offered annual leave, have a pass to the canteen or are they on the employers’ telephone list; which can trigger an investigation.
“All in all some companies may just need a bit of extra help in determining their payroll. It can be a complicated business but when understood easier to navigate. This helps explain why smaller businesses, many without a dedicated, expert accounts department are bearing the brunt of tax collection, in most cases brought on by simple, avoidable errors.”
Robson Laidler Accountants and Business advisors can help businesses determine who qualifies as being truly self-employed. Call the team on 0191 2818191 for more information.