The Tax Blind Spot Checklist

The Half-Million-Pound Problem: Why Employment Tax Risk Often Goes Unseen

With the World Cup earlier this year, there is a lot of focus on the big stars of the football stage. Ronaldo, Messi, Haaland, and who can forget our very own John McGinn?

In the tax world, corporation tax and VAT often get that kind of star billing too. They are visible, regularly discussed and clearly marked in the calendar.

Employment tax is less likely to make the glossy highlight reel though. Payroll runs every month. People are paid. The month closes and attention moves on.

But when something is missed, the cost can escalate quickly. For a business with significant employee costs, a £50,000 issue in one year can become £300,000 when HMRC looks back across six years. Add interest, penalties, back payments and the time needed to correct the position, and what first appeared manageable can start to look like a half-a-million problem.

There is also a people consideration. If someone is paid incorrectly, even by mistake, it can quickly cause stress, put pressure on payroll teams, create difficult conversations for managers and affect trust with employees. The technical issue may be fixable, but the human and reputational impact can last longer.

That is why employment tax is often the risk businesses do not realise they are carrying.

Employment tax issues rarely arise because people are careless or because someone has deliberately got something wrong. More often, they arise because capable teams are managing their own part of the process without enough visibility of what is happening elsewhere.

Where does the employment tax risk actually come from?

Payroll manages the monthly cycle. HR holds the people detail. Finance sees cost, reporting and controls. The challenge is whether those views are joined up before HMRC is the one joining the dots.

Take employee benefits. A business might introduce enhanced pension incentives, provide accommodation, reimburse expenses, or offer vouchers or meals because it wants to support its people. Each decision may be well intended and entirely reasonable, but it can also make the employment tax treatment more complex.

I have seen a business change employee benefits only to discover that the deductions had affected pay for National Minimum Wage purposes. Nobody had set out to underpay anyone, the intention was the opposite. But the issue still had to be reviewed, backdated and corrected, bringing cost, management time, employee conversations and potential reputational exposure into the picture.

Legislation changes, processes age, systems get adapted. A decision made in one part of the business creates a payroll or reporting consequence somewhere else. A process that worked when the business employed 50 people may need another look when it employs 200.

The same applies when businesses move quickly into new markets or mobilise people across countries. A new contract is good news and no business wants a new project or way of rewarding people to be slowed down by tax. But the structure around people, payroll and compliance needs to keep pace.

In Aberdeen, where I am based, many businesses are locally rooted but internationally active. In the energy sector, for example, people may be moving across countries, projects and client sites. The employment tax position behind that often needs a joined-up conversation.

Experienced advice earns its place here. The role is not to hold the business back. It is to help the business understand the position, manage the risk and move forward with confidence.

Sometimes that means correcting something. Sometimes it means better documentation or stronger controls between teams. Sometimes the first number on the table is not the final answer.

I have dealt with situations where an initial HMRC liability of around £100,000 was reduced significantly once the right legislation was applied. That is not about finding loopholes. It is about understanding the facts, applying the rules properly and making sure the business pays what is due, not more than it needs to.

Timing matters too. Earlier conversations usually give a business more options. Once an issue has repeated over several years, the financial position, the number of people involved and the work needed to correct it can all increase.

This is where relationship-led advice stops being a phrase and starts doing useful work. In my work with clients, it means being close enough to ask the right question at the right time, picking up the phone, understanding what has changed and having open conversations before an issue becomes urgent.

AMS’s recent growth in Aberdeen has added more specialist depth to those conversations, while keeping the focus on senior people who understand the local market.

For many senior teams, the first step is simply to ask when employment tax was last reviewed as a whole.

Are HR, payroll and finance seeing the same picture? Are overseas working arrangements being considered early enough? Are systems and controls still right for the size and shape of the organisation?

If these questions are difficult to answer, it does not mean something has gone wrong. But it is usually a sign that the conversation should happen before the business is forced to have it.