| CA | Contributions Agency |
| CIS | Construction Industry Scheme |
| CSL | Collection of Student Loans |
| DPTC | Disabled Person's Tax Credit |
| DTI | Department of Trade and Industry |
| FURBS | Funded Unapproved Retirement Benefit Schemes |
| ICTA | Income and Corporation Taxes Act 1988 |
| IR | Inland Revenue |
| IRRA | Inland Revenue Regulation Act 1890 |
| LEL | Lower Earnings Limit |
| NICO | National Insurance Contributions Office (part of the Inland Revenue) |
| NICs regulations | Social Security (Contributions) Regulations 1979 SI 1979/591 |
| NICs | National Insurance Contributions |
| NINO | National Insurance Number |
| NMW | National Minimum Wage |
| PAYE regulations | Income Tax (Employments) Regulations 1993 SI 1993/744 |
| PAYE | Pay As You Earn |
| PSAs | Pay As You Earn Settlement Agreements |
| SMP | Statutory Maternity Pay |
| SSAA | Social Security Administration Act 1992 |
| SSCBA | Social Security Contributions and Benefits Act 1992 |
| SSP | Statutory Sick Pay |
| TMA | Taxes Management Act 1970 |
| TOF | Social Security Contributions (Transfer of Functions, etc) |
| UEL | Upper Earnings Limit |
| VAT | Value Added Tax |
| WFTC | Working Families Tax Credit |
Routine powers
1. Our inspection powers for PAYE are contained within Regulation 55 of the Income Tax (Employments) Regulations 1993 and are mirrored for CIS, WFTC and CSL. The parallel powers for NICs are in regulation 32 of Schedule 1 to the Social Security (Contributions) Regulations 1979.
2. Regulation 55 (and its parallel regulations) can be summarised as follows.
3. Regulation 55 and the parallel regulations do not provide the officer with an explicit power of entry, still less by force, although to the extent that they permit the examination of records on site they imply a right to be there for that purpose. Nor do these regulations provide a power to interview individuals, including the employer himself.
Additional powers
NICs
4. But historically the work carried out by the CA extended beyond routine checks. The "inspectors'" powers were common both to the benefit fraud and contributions inspectors and extended powers were required to encompass this wider range of requirements. Section 110ZA of the Social Security Administration Act 1992 (as inserted by paragraph 3 of Schedule 5 to the Social Security Contributions (Transfer of Functions, etc) Act 1999) replicates for the Inland Revenue the powers that were available to the CA before the transfer, the only change being the replacement of the criminal penalty for non co-operation with the same civil penalties as apply for Regulation 55.
5. The powers in Section 110ZA apply only to NICs, SSP, SMP and functions under Part III of the Pension Schemes Act 1993. These are that:
6. There are three specific powers in section 110ZA which go beyond regulation 55:
Tax
7. Regulation 55 on the other hand (but not the parallel NIC power in regulation 32 of Schedule 1) can if necessary be supplemented by information powers which apply for tax and other Inland Revenue business but not for NIC or SSP/SMP:
8. Notices under both of these sections require the consent of an Appeal Commissioner and can be issued only after an informal request for the material has been made.
9. Under section 20(2) the Board of Inland Revenue is also empowered to issue a formal notice seeking the same material as section 20(1) without needing the consent of a Commissioner. This power requires the Board to have reasonable grounds for believing that the taxpayer may fail, or may have failed, to comply with rules and that failure is likely to lead to serious prejudice to the assessment or collection of tax. In practice it has been used very sparingly.
10. Where serious fraud is suspected, Inland Revenue officers, with the specific approval of members of the Board of Inland Revenue, may seek a search warrant under Section 20C of TMA from a Circuit Judge. Such cases are only dealt with by Special Compliance Office and warrants are sought only in the most serious of cases. This is not in any way a routine compliance power.
11. The Inland Revenue's civil penalty regime, under section 98 onwards of the Taxes Management Act, applies to the failure to grant the access to payroll records required under regulation 55. The Transfer of Functions Act applied the same regime to the failure to provide documents or make them available for inspection as required by section 110ZA. It also applies to the failure to comply with a notice under section 20 TMA.
Non-routine powers: what do they provide ?
Entry to employers' premises
12. Section 110ZA provides authority for the officer to enter, though not by force, any premises subject to inspection. The definition of those premises specifically excludes private dwellings. This can cause problems where business records are kept at the proprietor's home rather than the business premises. The only explicit power of entry available other than section 110ZA is the power of entry and search under section 20C TMA.
13. As mentioned above regulation 55 (and regulation 32 of Schedule 1) does not provide any explicit power of entry. And our published codes of practice say that we will try to give ten days notice of any inspection. So regulation 55 has not been seen as giving any right for an officer to visit an employer without notice and ask for the immediate production of records. By contrast, section 110ZA power has been seen as providing Revenue officers with immediate access to premises and records and for example as enabling an officer to move from premises to premises during the course of a day to obtain access to records which are always "somewhere else".
Power to obtain explanations to supplement examination of payroll records
14. Both section 110ZA and section 20 can be used to obtain explanations. In the case of section 110ZA there is an unelaborated obligation to provide such information as the officer may require. The legislation is silent on the form of the request or of information and on the period within which it must be provided. Section 20 on the other hand is subject to the safeguards described above and provides for the information to be supplied in writing within the time specified in a written notice from an authorised officer.
15. Section 110ZA also provides a power to examine individuals. There is no equivalent power for tax. The power to examine individuals is not only used to interview employers. Employees are also subject to this power and information that they provide is used to test the validity of records and information provided by the employer. A simple example would be where the employer has said, and the records show, that no overtime payments are made but the employees say that overtime is worked every Saturday. Similarly an individual, treated as self employed by the employer, may believe he is an employee and have reasons to give for that view. The advantage of this power lies not so much in the ability to require an answer but in the right to speak to employees without the employer's consent or interference.
Power to call for documents
16. Under section 110ZA an officer may call for any documents that he reasonably requires. This extends beyond the regulation 55 provision of "documents and records …… relating to the calculation or payment of …… emoluments" and would cover documents that may not fall within the regulation 55 definition, for example a contract between an employer and a third party for the provision of services to the employees. The nature of that contract would be relevant to the potential NIC liability.
17. The same documents could be required under section 20 TMA but to a slower time-scale. The prior consent of a Commissioner would be necessary or else the conditions necessary for the use of sub-section 2 would have to be satisfied (see para 9 above)
Indirect methods of obtaining information
18. In addition to its statutory powers to gather information the Inland Revenue may raise estimated determinations of tax underpaid. Regulation 49 of the Income Tax (Employment) Regulations 1993 allows an Inspector of Taxes to raise a determination of tax due "to the best of his judgement". Where the Inspector believes that tax has been underpaid, an estimated determination of the tax due from the employer may be made. A determination may be made where the employer is unwilling to provide relevant information and places the onus on the employer to displace the determination, usually by providing the outstanding information.
19. This procedure is not exactly mirrored in NICs legislation. However the introduction of new decisions and appeals provisions from 1999 (see the TOF Act 1999 Part II, and the Social Security Contributions (Decisions and Appeals) Regulations 1999/1027 now allow for decisions on NICs liability to be made on a similar basis - i.e "to the best of his information and belief". And the earnings on which the NICs liability is based may be estimated under Section 24(2) of SSCBA.
Current Legislation Covering Inspection Powers Of Employer Compliance Officers In The Inland Revenue Regulation 55;
Income Tax (Employments) Regulations 1993
(1) Every employer, whenever called upon to do so by any authorised officer of the Board, shall produce the records specified in paragraph (2) to that officer for inspection, at such time as that officer may reasonably require, at the prescribed place.
(2) The records specified in this paragraph are-
(a) all wages sheets, deductions working sheets, certificates given in accordance with regulations 29(1) and 30(1) (other than those which the employer has sent to the inspector) and other documents and records whatsoever relating to the calculation or payment of the emoluments of his employees in respect of the years or income tax periods specified by such officer or to the deduction of tax from such emoluments; or
(b) all documents and records whatsoever relating to any particulars which an employer is required to provide to the inspector under regulation 46 in respect of any year specified by the authorised officer; or
(c) such of those wages sheets, deductions working sheets, certificates or other documents and records as may be specified by the authorised officer.
(3) "The prescribed place" mentioned in paragraph (1) means-
(a) such place in the United Kingdom as the employer and the authorised officer may agree upon; or
(b) in default of such agreement, the place in the United Kingdom at which the documents and records referred to in paragraph (2)(a) are normally kept; or
(c) in default of such agreement and if there is no such place as is referred to in sub-paragraph (b) above, the employer's principal place of business in the United Kingdom.
(4) The authorised officer may-
(a) take copies of, or make extracts from, any document produced to him for inspection in accordance with paragraphs (1) and (2);
(b) remove any document so produced if it appears to him to be necessary to do so, at a reasonable time and for a reasonable period
(c) where any document is removed in accordance with paragraph (4)(b), the authorised officer shall provide-
(d) a receipt for any document so removed; and
(e) a copy of the document, free of charge, within seven days, to the person by whom it was produced or caused to be produced where the document is reasonably required for the proper conduct of a business.
(6) Where a lien is claimed on a document produced in accordance with paragraphs (1) and (2), the removal of the document under paragraph (4)(b) shall not be regarded as breaking the lien.
(7) Where records are maintained by computer, the person required to make them available for inspection shall provide the authorised officer with all facilities necessary for obtaining information from them.
(8) By reference to the information obtained from an inspection of the documents and records produced under paragraphs (1) and (2), the collector may, on the occasion of each inspection, prepare a certificate showing-
(a) the amount of tax which it appears from the documents and records so produced that the employer is liable to pay to the collector for the years or income tax periods covered by the inspection; and
(b) any amount of such tax which has not been paid to him or, to the best of his knowledge and belief, to any other collector or to any person acting on his behalf or on behalf of another collector.
(9) Paragraphs (1) to (5) of regulation 54 shall apply to the amount shown in a certificate under paragraph (8), with the modification that summary proceedings for the recovery of the amount of tax, or such part of it as remains unpaid, may be brought at any time before the expiry of twelve months after the date of the certificate.
(10) The production of a certificate under paragraph (8) shall be sufficient evidence that the employer is liable to pay the amount shown in the certificate pursuant to paragraph (8)(b) to the collector in respect of the years or income tax periods mentioned in the certificate.
(11) Any document purporting to be a certificate under paragraph (8) shall be deemed to be such a certificate until the contrary is proved.
(12) For the purposes of paragraphs (1) and (2), such of the wages sheets, deductions working sheets, certificates and other documents and records mentioned in those paragraphs as are not required by other provisions of these Regulations to be sent to the inspector or collector shall be retained by the employer for not less than three years after the end of the year to which they relate.
Regulation 32 Of Schedule 1 To The Social Security (Contributions) Regulations 1979
1) Every employer, whenever called upon to do so by an officer authorised by the Secretary of State or by the Commissioners of Inland Revenue, shall produce to that officer for inspection, at such time as that officer may reasonably require, at the prescribed place
a) all wages sheets, deductions working sheets, and other documents and records whatsoever relating to the calculation of payment of the emoluments of his employees in respect of the years or income tax [periods]6 specified by such officer or to the amount of the earnings-related contributions payable in respect of those emoluments; or
b) all wages sheets, deductions working sheets, and other documents and records whatsoever relating to the amount of any Class 1A contributions or Class 1B contributions payable by the employer in respect of the years specified by such officer; or
c) such of those wages sheets, deductions working sheets or other documents and records as may be specified by the authorised officer.
(1A) In paragraph (1) of this Regulation "the prescribed place" means-
a) such place in Great Britain as the employer and the authorised officer may agree upon; or
b) in default of such agreement, the place in Great Britain at which the documents and records referred to in paragraph (1)(a) or (aa) of this Regulation are normally kept; or
c) in default of such agreement and if there is no such place as is referred to in sub-paragraph (b) above, the employer's principal place of business in Great Britain.
1B) The authorised officer may-
a) take copies of, or make extracts from, any documents produced to him for inspection in accordance with paragraph (1) of this Regulation;
b) if it appears to him to be necessary to do so, at a reasonable time and for a reasonable period, remove any document so produced, and, if he does so, shall provide a receipt for any documents so removed; and where a lien is claimed on a document produced in accordance with paragraph (1) of this Regulation, the removal of the document under this sub-paragraph shall not be regarded as breaking the lien;
and where a document removed in accordance with sub-paragraph (b) of this paragraph is reasonably required for the proper conduct of a business the authorised officer shall within 7 days provide a copy of the document, free of charge, to the person by whom it was produced or caused to be produced.
2) The Collector by reference to the information obtained from an inspection of the documents and records produced under paragraph (1) may on the occasion of each inspection prepare a certificate showing-
a) the amount of earnings-related contributions which it appears from the documents and records so produced that the employer is liable to pay to the collector, excluding therefrom any amount deducted by the employer by virtue of the Compensation of Employers Regulations for the years or income tax periods covered by the inspections or
aa) the amount of any Class 1A contributions or Class 1B contributions which it appears from the documents and records so produced that the employer is liable to pay to the Collector for the years covered by the inspection, or such an amount in addition to an amount referred to in sub-paragraph (a) of this paragraph; and
c) any amount of such earnings-related contributions, Class 1A contributions or Class 1B contributions, or a combination of those classes of contributions, which has not been paid to him or, to the best of his knowledge and belief, to any other person to whom it might lawfully be paid.
1) The production of a certificate such as is mentioned in paragraph (2) shall, unless the contrary is proved, be sufficient evidence that the employer is liable to pay to the Collector in respect of the years or, as the case may be, income tax periods mentioned in the certificate the amount shown therein pursuant to paragraph (2)(b); and any document purporting to be such a certificate as aforesaid shall be deemed to be such a certificate until the contrary is proved.
4) The provisions of Regulation 28 shall with any necessary modifications apply to the amount shown in such a certificate.
5) For the purposes of paragraph (1) of this Regulation, the wages sheets, deductions working sheets (not being deductions working sheets issued under Regulation 21 of the Income Tax Regulations) and other documents and records therein mentioned shall be retained by the employer for not less than three years after the end of the year to which they relate; and, in the case of any of those documents or records which contains any information relating to the amount of any Class 1A contribution [or Class 1B contribution, for not less than three years after the end of the year in which that contribution became payable under Regulation 26C(1)
6) For the purposes of this Regulation "employer" means, in relation to a Class 1B contribution, the person liable to pay such a contribution in accordance with section 10A of the Social Security Contributions and Benefits Act 1992.
Social Security Administration Act 1992: Section 110ZA
1. For the purposes of the enactments to which this section applies, the Inland Revenue may authorise any of their officers to exercise the powers conferred by this section.
2. An officer authorised under this section shall, for the purposes of the execution of those enactments, have the following powers-
(a) to enter at all reasonable times any premises liable to inspection under this section;
(b) to make such examination and inquiry as may be necessary for ascertaining whether the provisions of the enactments are being, or have been, complied with in any such premises;
(c) to examine, either alone or in the presence of any other person, as he thinks fit, in relation to any matters under the enactments on which he may reasonably require information, every person whom he finds in any such premises or whom he has reasonable cause to believe to be or to have been a person liable to pay-
(i) contributions; or
(ii) a contributions equivalent premium, and to require every such person to be so examined.
3. Premises are liable to inspection under this section if an officer has reasonable grounds for believing that-
(a) any persons are employed there;
(b) a trade or business is being carried on from there;
(c) any records relating to a trade or business are kept there; or
(d) a personal or occupational pension scheme is being administered there;
but a private dwelling-house is not liable to inspection under this section unless an officer has reasonable grounds for believing that a trade or business is being carried on from the dwelling-house and that the trade or business is not also being carried on from premises other than a dwelling-house.
4. Every officer authorised under this section shall be furnished with a certificate of his authorisation, and on applying for admission to any premises for the purpose of the enactments shall, if so required, produce the authorisation
5. In accordance with this section, persons shall furnish to an officer all such information, and produce for his inspection all such documents, as he may reasonably require for the purpose of ascertaining-
(a) whether-
(i) any contribution; or
(ii) any contributions equivalent premium, is or has been payable, or has been duly paid, by or in respect of any person;or
(b) whether statutory sick pay or statutory maternity pay is or was payable to or in respect of any person.
6. The following persons are under the duty imposed by subsection (5) above-
(a) any person who is or has been an employer or an employee within the meaning of any provision of the Contributions and Benefits Act;
(b) any person carrying on an agency or other business for the introduction or supply to persons requiring them of persons available to do work or to perform services;
(c) any person who is or has at any time been a trustee or manager of a personal or occupational pension scheme;
(d) the servants or agents of any such person as is specified in any of the preceding paragraphs.
7. This section applies to the following enactments-
(a) the Contributions and Benefits Act so far as relating to contributions, statutory sick pay or statutory maternity pay;
(b) this Act; and
(c) Part III of the Pensions Act.
8. Any reference in this section to a contributions equivalent premium includes a reference to state scheme premiums payable before 6th April 1997 (the day on which section 141 of the Pensions Act 1995 came into force).
Draft Guidance For Employers: Irregular Payments And NICs
Liability for NICs arises at the time a payment is made. So for NICs purposes employers should add all payments made in a particular earnings period together and calculate the NICs on the total to establish the full liability.
This includes payments that are made outside an employer's normal payroll arrangements. Employers should try to ensure that they have a reporting system which allows the payroll section to receive the relevant information before the end of the earnings period so that they can record the total earnings figure on the Deductions Working Sheet.
However, the Inland Revenue recognises that in many cases it is not possible for employers to get information about some payments made outside the payroll to their payroll sections in time. In these cases employers will not be able to comply with the general rules in the previous paragraph.
The Inland Revenue is generally content that in such circumstances the NICs can be calculated on the payment when it is put through the payroll rather than requiring the employer to recalculate past earnings periods. The Inland Revenue will expect employers to ensure that such payments are put through the payroll and class 1 NICs applied as soon as is reasonably practicable and generally before the end of the tax year in which the payment was made. This applies to payments such as:
Inland Revenue employer compliance officers will only ask the employer to recalculate the class 1 NICs and allocate the payment to the correct earnings period where:
No penalties or interest will be charged on payments allocated to the incorrect earnings period in year.
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