No matter how robust you believe your international mobility policies and procedures are, only the naïve would be blasé about a HM Revenue and Customs Expatriate compliance review! One of our clients faced just such a review and were taken aback by the impact on their day-to-day business.

“Never again will we ignore the complexities of tax and social security for the mobile population on such a grand scale!

The numbers speak for themselves
For a tiny population of only 25 expatriates being reviewed, our compliance review took the man hours of approximately 30 employees over two years and to this day we are still waiting for the final settlement figure! With five of our tax provider’s employees, costing an average of 10,000 GBP per month, the expert advice is essential, but costly. Although we were advised that this was a very swift review, with typical reviews lasting much longer, to us this felt painfully slow and excruciating financially.

Why did it take so long for such a small population I hear you ask?
The review initially looked at one tax year, but eventually went back six tax years, with the threat of going back 25 years! Trying to locate and collate the data required by the HMRC in a digestible format is extremely time-consuming. One HMRC question answered often leads to new questions and routes of investigation, until you are caught in a spider’s web of queries.

The Final Blow
The final bill will not only include the taxes due and NIC, but also interest and penalties.  We were advised that the only way to avoid the penalties would be to invite the HMRC in to conduct a review (not an appealing option), otherwise typical penalties range from 10 – 50% of the actual liability depending on how quickly you respond to the HMRC request and the nature of the non-compliance, if found.

What were the hot topics?

• Short Term Business Visitors – how do you track this population?
• Bonuses paid overseas but relating to the UK performance
• Any allowance paid overseas but relating to the UK
• Expenses relating to the relocation and ongoing assignment costs

Can you avoid a review? Probably not. If you have not had a PAYE or Expatriate Review in recent years, then it is plausible to expect one in the post - certainly if you have a global presence.

What can you do to minimize the impact?
If you do not centrally manage your expatriate population I suggest you consider either doing so or outsourcing this function as soon as possible. After going through this disruptive process on what was a small scale (only 25 expatriates remember), the best advice I can give you is to ensure you have a policy which is published and adhered to. Where inconsistencies/exceptions in policy management were found, the HMRC were tempted to investigate further, and with your defence reduced, inconsistencies are harder to justify.

Ensure you have a solid relationship with your outsourced payroll provider, expatriate management company and tax provider. Take heed of their advice and engage them fully. Being selective about when you engage such subject matter experts will often leave you exposed to non-compliance without you realising. Unless you are a tax expert and regularly keep up-to-date with the ever changing rules and regulations, don’t assume you don’t need tax planning advice for your mobile population. To make this fatal mistake means you do not take into consideration each employee’s personal circumstances and this will leave you vulnerable to non-compliance.

What did we learn from this experience?

• The value of policy consistency and adherence - and the cost of ignoring this fundamental philosophy!  
• Affirmation that the smallest population of your workforce will create the most work - and should, therefore, be properly managed.  
• The value of employing an in-house dedicated resource to manage the international policy and the essential requirement for external suppliers (the ‘subject matter experts’) on each and every move - cutting corners to save costs will only come back to haunt you.
• The cost of tax advice is far lower than the cost of getting it wrong.

No doubt we will continue to make the occasional mistake and some departments will try to shortcut the policy, but never again will we ignore the complexities of tax and social security for the mobile population on such a grand scale!”

Are you concerned about what HM Revenue and Customs may find in your business?

Why not ask IPM to undertake a Compliance Audit with you? Initially we will undertake an audit of a sample of your assignees to give you an idea of your potential exposure when HMRC calls, before advising on a plan of action.