HMRC is adopting a geographic approach in its bid to tackle SMEs not complying with national minimum wage rules, the complexity of which is causing concern.

Small or medium-sized enterprises (SMEs) are being targeted as HMRC ramps up its crackdown on national minimum wage (NMW) non-compliance, with the enforcement being so prevalent because of “how complex the rules are”, a senior figure at Azets has told AccountingWEB.

The firm has noted that Belfast, Birmingham, Bradford, Cardiff, Cornwall, Cumbria, East Anglia, Glasgow, Liverpool, the North East and Watford are being “specifically targeted” by the tax authority, with HMRC having committed more than £27m to tackling NMW non-compliance.

Those found guilty of non-compliance will be ordered to pay arrears, in addition to increased national insurance contributions (NICs).

If a business does not accept HMRC’s initial offer of a health-check meeting, Azets has warned that they risk financial penalties, as well as a public naming and shaming.

To be expected

Speaking to AccountingWEB, Kyle Newton, head of national minimum wage at Azets UK, stressed that it was to be expected that HMRC would start ramping up its crackdown.

“HMRC has consistently increased NMW enforcement year-on-year since it introduced public naming and shaming in 2013,” he said.

“Until the past 18 months, HMRC’s efforts on NMW enforcement have focused predominantly on large business or specific sectors.

“However, as HMRC has become under increasing pressure to reduce the tax gap. From a NMW perspective it has been looking to extend its reach to small and mid-size businesses, which is the focus of the geographic approach.”

Complex rules

Businesses found not to be complying with NMW rules could be inadvertently breaking them due to complexity and common misunderstandings.

Indeed, Newton believes the enforcement activity is so prevalent because of how complex the rules are.

“Maintaining compliance with NMW is commonly misunderstood, with the calculation made up of many different components; it is not just an hourly rate of pay. Typically, this is what businesses focus on as opposed to all the nuances within the legislation that HMRC commonly enforces.

“To maintain NMW compliance, employers need to consider the so-called five pillars: entitlement, worker type, working time, payment and deductions, and record keeping, policies and control mechanisms.

“As an employer, only if you understand each of these and have policies in place to govern and control each, can you mitigate the risk (as far as possible) of a potential NMW underpayment arising.”