As part of HMRC’s ‘Geographic Compliance Approach’, we have learned that HMRC’s National Minimum Wage (NMW) team are now targeting employers in the East Midlands. This approach has proven successful to HMRC, whose recent targets include the North-East and Liverpool. As detailed below, the approach involves contacting businesses directly, but it also involves prompting workers to make reports if they think they’ve been underpaid.
So, what does this mean for you?
If you are an employer in the East Midlands, you might receive a nudge letter from HMRC prompting you to do some internal checks. There is no deadline and no obligation to report any findings to HMRC, and consequently these are easily overlooked.
However, following a nudge letter you might receive an offer from HMRC to have a free support call with one of their NMW experts. This can be an opportunity to correct issues without the risk of sanctions (i.e. no penalties and no public naming). If an employer is offered a support call but does not proceed with it, HMRC have confirmed that there is a higher risk that they will be selected for a full NMW review. If you receive an offer for a support call, it may therefore be beneficial to accept it.
If any issues are identified during a full NMW review, the business may be liable to pay arrears to both current and former employees, and if the errors relate to earlier tax years the underpayments are uplifted to the current rates (see below). In addition, there may be penalties which can be up to 200% of the arrears, and any businesses with more than £500 of arrears will feature on the ‘name & shame’ list.
In short, a full NMW review can be costly, not just in terms of financial impact but also reputational damage.
As of 1 April 2024, workers aged 21 and over are entitled to the National Living Wage (NLW) which is currently £11.44. Lower rates apply to younger workers and can apply to those who are undertaking Apprenticeships.
Whilst it’s important to get the hourly rate right, NMW errors are often in connection with other areas of compliance. The NMW regulations are complex and it’s all too easy to be inadvertently caught out. We commonly see issues in the following areas:
- Unpaid working time – for example, hourly-paid staff working through an unpaid lunch, arriving early, or staying late. It’s important to note that this issue can also affect salaried employees working unpaid overtime, and even those with salaries which are comfortably above NMW.
- Deductions from pay – This can include things like salary sacrifice or admin charges, but it can also include payments for the benefit of the employer (for example, paying off a balance at a staff canteen). If an employee is required to buy things for their job, such as part of their uniform or tools, this also counts as a deduction even though it’s not visible through payroll.
- Incorrect worker type – There are four categories of worker for NMW purposes, which dictate the regulations that apply. Getting it wrong can mean you’re following the wrong rules for your workers.
If you want to minimise your risk, now is a great time to make sure you’re in the best position for any questions from HMRC. If you have any queries or concerns, or if you’ve received a letter from HMRC and need some help, our Employment Taxes team are more than happy to have a call.
Minesh Trivedi – Partner, Minesh.Trivedi@claritastax.co.uk 07961 616944
Becky Hardy – Manager, Becky.Hardy@claritastax.co.uk 07572 948736
Ses Memhi – Partner, Ses.Memhi@claritastax.co.uk 07813 212177
