With the government’s spending plan reliant on increasing public funds by decreasing the tax gap, Employer Compliance Reviews could be a key focus area for HMRC in 2025.

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The government estimates the tax gap for employer compliance was 0.9% in 2024. While this may seem small, the income tax and NIC collected through PAYE in the year ended 5 April 2025 will be in the region of £420 billion. This makes the 0.9% gap worth almost £4 billion – a significant incentive for HMRC to take steps to improve compliance.

Given responsibility for correctly operating the PAYE system and reporting benefits in kind rests with employers, the cost of getting things wrong, even inadvertently, are high. As is the risk of making mistakes, due to the ever-increasing range and complexity of employment taxation and constant changes to legislation and guidance.

HMRC’s Employer Compliance Reviews are wide-ranging investigations covering many different aspects of employee taxation. HMRC usually carry out approximately 30,000 such reviews every year resulting in employers facing an average bill of £10,000. Being subject of an Employer Compliance Review can be extremely stressful and daunting for businesses and typically involve a review of all the prime records of the business and interviews of key personnel. For this reason, HMRC usually asks for the review to take place at the business premises.

What do Employer Compliance Reviews usually cover?

What do Employer Compliance Reviews usually cover?

Employer Compliance Reviews usually cover (inter alia) the following areas:

• Payroll and the operation of PAYE and NIC;

• The operation of the national minimum wage and national living wage;

• The operation of payments to subcontractors under the Construction Industry Scheme;

• The employment status of workers (employed vs. self-employed);

• The operation of IR35;

• Benefits-in-kind and non-cash remuneration;

• Travel & entertainment expenses and reimbursement procedures;

• Salary sacrifice;

• Share schemes;

• Termination or redundancy payments;

• Operation of tronc schemes in the hospitality and leisure industry; and

• Expatriate and inpatriate workers

If you are under an Employer Compliance Review and have not operated procedures correctly, you need to manage the situation extremely carefully. This will help mitigate potential financial penalties and also reduce the risk of the Employer Compliance Review being extended. In more serious cases, HMRC could consider the case for criminal investigation.

How can we help?

We have a proven track record in managing Employer Compliance Reviews to best defend a client’s position. We will control and manage the Review and formulate an overall strategy to get you through the process quickly and effectively, minimising the extent of HMRC’s potential enquiry. We will present you with all available options and what the consequences of taking each option will be. Where appropriate, we will tell you how best to challenge any HMRC approach or decision. Should there be any exposure to PAYE/NIC, interest and penalties we will best mitigate this, thus minimising HMRC publishing details about you on its ‘Tax Defaulters’ website. In the most serious of cases, our involvement has prevented our clients from being criminally investigated or, worse still, prosecuted.

We can undertake a pre-emptive review of your business and records to determine areas where additional tax or NIC may be due and can advise on ways to reduce the risk of non-compliance. We can approach HMRC and determine why your business has been selected for Review. We can also be present when HMRC are conducting the Review to ensure that the scope of the review is not extended to records and returns that have no bearing on wages or benefits.

Putting it simply, we provide a discreet and comprehensive service that is tailored to meet your unique needs and protect your interests.

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Instructing Solicitor