JEREMY MINDELL THINKS THE SENIOR ACCOUNTING OFFICER REGULATIONS WILL BOOST THE STATUS OF IN-HOUSE EMPLOYMENT TAX SPECIALISTS
It is the constant lament of employment tax specialists that in the taxation pecking order they are firmly behind their corporation tax colleagues. Even in HMRC, the hierarchy was hitherto seen to favour corporation tax.
This shows itself in the profile given to corporation tax issues by companies. And this is in turn reflected in the small number of in-house posts for employment tax specialists. But could this be about to change?
For many years, corporation tax has produced a lower and lower proportion of government revenues. Moreover, corporation tax is more variable and subject to the cyclical swings of the economy. In recessionary years, when the need for revenue is at its greatest, corporation tax consistently fails to come to the aid of the party.
By contrast, although there are some cuts in wages during a recession and potential reductions in employment, the income tax and National Insurance revenues remain relatively buoyant.
Governments may have recognised that while there is significant tax competition in corporation tax, they can still shake more revenue out of the individual through income tax, National Insurance or capital gains tax.
A wide variety
Employment taxes are also efficiently collected through the operation of the PAYE system. For all its difficulties for employers, PAYE does a very efficient job for the government in collecting tax and National Insurance at very little cost to the Exchequer. Employment taxes also have a wide variety of responsibility covering a number of disciplines.
A traditional PAYE audit would cover areas such as the construction industry scheme; employment status; share scheme compliance; the operation of statutory maternity and sick pay; year end tax calculations and adjustments; expenses and benefits, P11D compliance and international tax withholding responsibilities’ including business visitor regulations.
The list goes on and ensures that companies carry on their job of assessing and collecting revenue for the Exchequer.
To encourage compliance, the last government came out with the new initiative of the senior accounting officer (SAO). In short, this forces finance directors to sign that they are happy with the procedure adopted by the company for the calculation and payment of tax.
If the director does not sign this declaration or does sign and the company is found to be deficient, the finance director faces personal fines as well as unwanted negative publicity. This tends to concentrate the mind.
Rising yield and cost
Clearly, the sanctions in the SAO are focusing on, and raising the profile of, employment taxes. Corporation tax rates have fallen substantially; they were 52% in living memory, are now at 28% and there are plans to reduce them to 25% or lower.
During the same period, National Insurance has more than doubled and with the lifting of the cap for employees’ contributions, the cost to businesses has rocketed.
With the increased pressure on government budgets, there is unlikely to be a let-up in HMRC’s interest in the wide range of employment taxation areas. But can this be dealt with by commissioning consultants or PAYE advisers once every couple of years to do a mock audit and then put the issue on the back-burner for the rest of the time?
I think not. The decisions made need a constant presence to ensure that the procedures agreed to are actually carried out in practice.
Compliance requires a proactive approach. Good compliance often means not taking shortcuts and working through the issues; be it termination payments, self employment, split payroll or immigration considerations. There is often a quick convenient way, but that does not normally lead to the best results. Without a constant in-house presence, companies can veer from good practice to non-compliance alarmingly quickly.
The in-house function
So is this the time to consider boosting the in-house presence? Given the amounts at stake, many companies should be considering this. Although adding to the in-house presence increases the head count and the fixed costs, it can be very useful in terms of saving consultancy costs and reducing the company’s vulnerability to HMRC action.
Because one is dealing with people, new challenges and different situations constantly spring up. The challenges of an upturn are very different from those of the downturn.
In a recession one is dealing with issues such as outsourcing, expense control, redundancy and termination payments. In an upturn, issues such as employment status, capital gains, share scheme issues, overseas assignments, etc. come back to the fore.
Companies have started to recognise that they need qualified tax personnel in the business who can deal with matters on a regular and consistent basis, rather than consultants who appear from time to time.
The relationship with consultants will also change as less money is spent on routine compliance. By compensation, an in-house team is often tasked with improving tax planning and would require more added value from a consultant to take a more proactive approach.
Here to stay
In conclusion, the greater focus on employment taxation by the government and the new obligations on companies should give more opportunities for in-house employment tax specialists. The SAO is not going away and employers really need to adapt to its new strictures or else.
