HMRC suspects 2,099 businesses are evading tax and National Insurance on employees pay, up from the 1,599 businesses that were on its watch list last year, according to law firm Pinsent Masons. This is an increase of 31%.
Two years ago, HMRC considered just 1,350 businesses to be at risk of evading payroll taxes.
Pinsent Masons says a large number owners who are trying rescue their business by using their employees’ payroll tax to keep trading.
Chris Thomas, senior associate at Pinsent Masons, said, “There are a surprising number of businesses that don’t pass on the tax and National Insurance that they deduct from employees to HMRC. Sometimes that is because they intend to defraud HMRC but often it is because they need the money to keep the company going.”
“Even though business owners might see that as an acceptable way to save their staff’s jobs HMRC will see this as cheating the public purse.”
He adds that HMRC is increasingly using data gained for the new RTI system to launch investigations, which could lead to a continued rise.
It says the other challenges facing businesses are: large tax free lump sums paid on termination; ensuring expat employees are being charged the correct tax on work outside the UK; and hidden employees – staff being paid a contractors (i.e. with no employer’s NI being paid) when they should be treated as an employee.