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HMRC compliance checks reach private schools

HM Revenue and Customs (HMRC) has begun writing to private schools to inform that they will be carrying out employer compliance reviews, which could result in considerable settlements with interest and penalties where tax mistakes are found.
This latest crackdown follows a number of other targeted campaigns which clampdown on potential tax avoiders, including music teachers and second home owners, reflecting the increasingly hard line taken by HMRC when enforcing tax law.
Private school compliance checks are expected to primarily affect private schools where staff are given free accommodation, which is tax exempt, compared with the associated utility bills, which are viewed as a taxable benefit.
George Bull, senior tax partner at Baker Tilly, said: "Most schools are heavily leaning on the exemptions available for work-related accommodation, but they need to ensure that these exemptions are being correctly applied to all resident employees.
"It’s clear that some schools are providing accommodation which would not meet the strict requirements, but in any case, all schools should consider undertaking a review of their employees’ duties to ensure that they fall within one of the exemptions.
"Even if the accommodation is exempt, many schools are providing electricity, gas, cleaning, decorating, gardening services and even furniture for resident employees, all of which represent a taxable benefit in kind reportable on forms P11D.
"Some schools ignore the provision of utilities on the basis that the properties don’t have separate meters, but in reality this just makes the measurement of the benefit more complex and does not give any basis for exemption."
HMRC uses compliance checks to verify that a business or organisation has paid the correct amount in taxes.
If you have been notified of an impending HMRC compliance check it is important to do the following:

  • If you think you have got something wrong – tell HMRC before they tell you

  • Throughout the compliance check you should be as helpful as you can

  • Ensure you have well-organised, clear records to make it easier for the compliance check officer to carry out their work

In order to help taxpayers understand the rules, HMRC has published a series of factsheets covering the many aspects of compliance checks.

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