Tax & Accounting News

Paying The Tax On Benefits

23/09/2009

Any business owner will be familiar with the financial penalties if HM Revenue and Customs (HMRC) spots any mistakes in the tax and National Insurance (NI) contributions they collect from employees on its behalf.

HMRC prefers to go after the employer for the missing tax rather than chasing individual employees, so will encourage them to pay up by offering to waive the penalties that would normally be due.

A common problem uncovered by PAYE audits is benefits in kind (BiK) which have been missed off form P11D. However, while an employer would owe class 1A NI contributions on the value of the BiKs, the tax itself is the personal liability of the recipient of the business, and the owner cannot be forced to pay.

HMRC will also increase the amount a business owes by ‘grossing’ the amount due. Its argument is that, had it chased the employee for the funds concerned, they would have paid it out of their taxed income and would, for example, have needed £339 of gross pay £200 of overdue tax. Therefore it charges the gross amount to the employer as well.

The owner of a business being chased by HMRC in this way should ask their accountant to check whether penalties are actually due – they will not be if the underpayment of tax was the result of an innocent error. Even if penalties are due, it may be that they are lower than the cost of the tax and interest, particularly once ‘grossing’ has been taken into account.

Anyone who is confident the error was not due to their lack of care is perfectly entitled to appeal against the penalty charges to the Tax Tribunal.

For more information or advice please contact us.