National minimum wage is currently a hot topic with HMRC and with the announced increase in the living wage to £9 per hour by 2020 it is going to affect more and more businesses.
HMRC have a dedicated team conducting investigations into the national minimum wage and have a wide range of powers to inspect documents and interview employees and other company personnel.
Most investigations start out with an employee making a complaint to HMRC that they are not paid national minimum wage. This could be because they believe they are not paid for breaks or, as set out in a recent public case, that they are not paid for searches on entering or leaving the business premises.
What most businesses are not aware of is that if they do not have robust audit trails and evidence then HMRC can issue a Notice of Underpayment. This states the amount that HMRC believe is underpaid and can often be incorrect. If the notice is not appealed then the employer has to repay the difference between the national minimum wage and that paid to the employee. In addition, as a fine the employer must pay a penalty to HMRC of double the amount it had to repay to the employee.
For example, if a national minimum wage investigation resulted in £10,000 of wages needing to be paid to employees, HMRC will issue a penalty to the employer of up to £20,000. The amount is capped at a maximum of £20,000 per worker.
In addition to this every business which receives a notice of underpayment which results in them paying a fine is having their company name and details put on-line on HMRC's "name and shame" list. Thus not only is there a high financial price to pay but there is also the bad publicity to deal with.
HMRC are not always correct and proper handling of a national minimum wage investigation can result in a quicker and better outcome from any national minimum wage investigation. HMRC often have unreasonable expectations as to what records a company should keep and it should always be remembered that it was a member of staff complaining that the business did not pay the national minimal wage which led to the HMRC investigation.
Occasionally businessmen will be prosecuted for not complying with the national minimum wage requirements.
This can be as a result of:
In 2014 HMRC conducted over 1,450 national minimum wage investigations and nearly half were found to contain at least some errors. Of these, 450 were issued with a notice of underpayment which resulted in them being "named and shamed".
Since this time HMRC have tripled the number of people who they employ to prosecute individuals and have also increased the manpower in their national minimum wage investigation teams.
All of this coupled with the dramatic rise in the level of national minimum wage is going to lead to many unsuspecting businesses being investigated.
The best thing to do is to have a thorough audit of the processes and procedures to ensure that all the correct paperwork is maintained and to ensure that the minimum wage is being paid.
Where people are subject to a national minimum wage investigation it is imperative that they engage with an advisor who is familiar with HMRC investigations and what they are and are not allowed to do and ask.
"We understand that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.
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The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.
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