21.1
Introduction
Over
the lifespan of a business, there will be much sensitive information kept about
employees, and whilst most of this is necessary it is important to recognise
the difference between the information you need to keep and the information
that is not needed.
In
order to comply with Data Protection regulations, employers must only keep
information on record for a set amount of time, and it should only be
accessible to the people who need it for their work duties. Over the course of
this module, we will explore the information you need to keep about an
employee, how long you need to keep it, payroll record information and the
guidelines related to this. We will discuss more about Data Protection and also
summarise what happens if HMRC requests a visit for a Tax Compliance Check
Why
do employers need to keep employee records? What information needs to be kept?
Whether
you are a mainstream employer or self-employed, you need to keep up-to-date and
accurate records relating to not only your employees but payroll in general.
Reliable employee records can help you make decisions based on facts rather
than guesswork. Similarly, personnel records are also crucial for the
formulation and implementation of employment, training and dismissal policies.
In
addition, accurate records help ensure that workers receive accurate pay,
pension, holidays and other entitlements and benefits. Good records also help
the organisation prove compliance with equal opportunities regulations and
protect them from allegations of discrimination. A number of organisations such
as the Disability Rights Commission (DRC), Commission for Racial Equality (CRE)
and Equal Opportunity Commission (EOC) track discrimination and equality issues
in the workplace.
How
you keep your employee records is entirely up to you but this needs to be well
thought out in order to focus on the best recordkeeping method for your
particular business. You could keep records on a computer through spreadsheets
and databases. In this case, you would need to ensure that all information is
backed up regularly and that only appropriate personnel have access to the
information via a password, etc. You also need to consider what happens in the
event of a problem with the computer, e.g. it is destroyed for some reason. The
alternative is a paper-based system, e.g. keeping information in locked,
fireproof filing cabinets. Again the information should only be accessible to
those who need access to it for their job.
The
recordkeeping system (whether manual or computerised or a combination of both)
must be:
·
-Reliable, consistent and accurate
·
-Secure and confidential, and you must
be able to control access
·
-Adaptable and scalable
·
-Must allow records to be easily
retrieved (securely)
In
terms of what information needs to be kept depends on the job itself. You need
personal information, such as name, date of birth, contact numbers, next of kin
in case of an emergency, address, etc., and you may also need work history and
references on file. However, if you are keeping anything which you do not need,
such as former bank details, etc., these need to be deleted.
In
terms of Data Protection, businesses need to make sure they adhere to the
guidelines very strictly, as there are severe penalties for those who do not.
The
following section will look at Data Protection in much more detail; however, as
a basis, you need to be aware that you should be keeping pertinent personal
information on your employees, as well as payroll information for three
years after the tax year it pertains to. Again, we will discuss payroll
recordkeeping in much more detail later in this module.
21.2
Compliance with Data Protection Regulations
As
we have mentioned so far, information kept on an employee needs to comply with
Data Protection.
This
means:
· Information must be kept secure, accurate and up to
date
· When you collect personal information, you must
inform the person of who you are and how you will use their information, and
you have to tell them if the information is going to be passed to another
organisation and the reason for this
· Employees have a right to see any information you
are storing on them, and if the information is incorrect, they can correct it
· Information must only be kept for as long as you
have a need for it in terms of business use
· Information must be securely destroyed after use,
e.g. shredded and disposed of via confidential waste methods
· Only the appropriate staff should have access to
personal staff information, and those individuals should have had appropriate
training, as well as understand the importance of confidentiality at all times
· Information on particularly sensitive issues, such
as criminal records, must be stored separately from general information
In
terms of keeping information secure, you should consider carefully storage
options and be fully prepared. You need to think about what would happen to
this important information in the event of a fire, for example, and devise ways
to protect against loss and damage. We mentioned that employees have a right to
see any information held about them, and they have a right to also ask for a
copy of it. This request should be put in writing, and as an employer, you need
to respond to it within a certain time frame.
A
comprehensive list of personal data which employers can keep is found on
the UK Government website, along
with details of how long employers currently have to respond to an employee's
request for data.
Some
information can be withheld in certain situations, e.g. if any of the
information also pertains to someone else, such as another member of staff who
has accused them of harassment or bullying etc. This is to protect the other
member of staff, and in this case, there are certain routes to take.
· Data
Protection runs hand in hand with the Commissioner's Office, also known as ICO,
whose role is to uphold information rights in the public interest. ICO need to
know how your business uses personal information about employees and can check
on this at any time; much like HMRC can with payroll issues.
·
For
this reason, you always need to adhere to Data Protection regulations and
confidentiality to avoid penalties which can be charged to a business that does
not follow these guidelines.
21.3
Payroll Records From an HMRC Point of View - What You Need to Do/Keep
Whether
you are an employer with employees or self-employed, you must by law keep
records of your business profits, income and any costs which pertain to it.
This
information must be kept for three years after the tax year the information
pertains to and HMRC can ask to see this information at any time. We will look
at this later in this module; about Tax Compliance Checks, the consequences of
not keeping correct information, as well as what to do if you lose the
information for some reason.
HMRC
can ask to see information you hold in terms of payroll in order to check that
you are paying the right amount of tax. Therefore, you need to keep the
following records:
·
-Information on what you pay your
employees every week or month (however frequently you pay your staff)
·
-Deductions you make from your
employees' wages, both statutory and voluntary
·
-Any reports you make to HMRC
·
-Any payments you make to HMRC
·
-Sickness absence information, as
well as information pertaining to employee leave
·
-Any tax code notices
·
-Information on taxable benefits and
expenses
·
-If you are involved in the Payroll
Giving Scheme, you need to keep all information relating to this
HMRC
may charge you a penalty if you do not keep up-to-date records, as well as estimating
the amount of tax you should pay. Details of the current penalty for
non-compliance are found in this HMRC overview of payroll recordkeeping requirements.
Again,
how you keep this information is a personal decision for your business, and can
be either paper-based or computerised. The option you choose needs to be backed
up and secure, in case of a possible check by HMRC at any given time. As well
as this, such information is very sensitive and should only be accessible to
authorised personnel, i.e. those who need such access for their job, e.g.
payroll department staff and line managers.
21.4
Tax Compliance Checks
HMRC
can ask to see your payroll records at any time and this is called a Tax
Compliance Check.
A
Tax Compliance Check can happen at any time during any tax year. It can happen
to either a business with employees or a self-employed person who pays their
tax through self-assessment. Nobody is immune to this possibility and it is for
this reason that up-to-date and accurate recordkeeping is imperative. If you
are selected for a Tax Compliance Check, then HMRC will write to you first and
inform you of this occurrence. They will tell you exactly what it is they want
to check and set up a date for the check to happen. HMRC will either come to you,
i.e. your business or home, or they will ask you to go to them. This gives you
chance to collate the information which HMRC want to see, to avoid
time-wasting.
Information
that HMRC may want to check can include:
· Tax amounts paid to HMRC
· Tax calculations and account information
· Self-assessment tax calculation if you are
self-employed
· Company tax returns
· PAYE information and returns
If
you outsource your payroll duties, then HMRC will write to your accountant or
bookkeeper rather than you and inform them of the Tax Compliance Check taking
place. You cannot avoid a Tax Compliance Check and if you receive
correspondence stating that a check is going to take place, you need to
prepare. You are able to have a legal advisor or accountant with you at the
time, and you will be given sufficient notice in order to arrange this.
Only
'reasonable excuses' will be tolerated in terms of rearranging the check, but
not cancelling it. 'Reasonable excuses' include serious illness to yourself or
the death of someone close to you. During the check, you will be asked
questions and records will be reviewed. The HMRC officer will then write to you
after the check and inform you of the outcome, as well as any action which may
be taken, e.g. refunds of overpaid tax or arrangements to pay back any tax
which you have underpaid.
An
HMRC Tax Compliance Check can be a stressful experience but provided you have
all the information up to date and ready to be inspected, it should be a quick
and easy process; problems only occur when records are incorrect or out of
date.
21.5
Consequences of Not Keeping Up to Date and Accurate Payroll and Employee
Records
We
have dedicated an entire module to recordkeeping and stressed the importance
several times within the course modules.
Records
must be kept up to date, confidential, in compliance with Data Protection
regulations, only obtainable by those who need access for their job, and kept
only for the length of time the records are needed. Anything over and above
this should be destroyed by confidential methods. In
terms of payroll information, HMRC can charge a penalty if they find your
records do not comply with their guidelines.
We
should also mention that records have to be legible, so if you do use
paper-based methods, makes sure you print clearly, preferably in black ink. Of
course, accidents do happen occasionally and HMRC recognises this. If you
accidentally destroy or lose any records you must ensure you try and get copies
of as much information as possible, i.e. contact the bank and get previous
statements, or contact any suppliers you use and get repeat invoices etc.
You
may not be able to retrieve everything but provided you get back as much as
possible, you should be covered. On top of this, however, you need to let HMRC
know that the figures you are using may be affected by such circumstances. You
are able to use estimated or provisional figures on returns if you are not able
to use accurate figures; however, you must inform HMRC of this instance by
entering an explanation in the 'any other information' field on
your tax return.
We
mentioned provisional and estimated figures and there is an explanation behind
this:
Provisional:- you will be able to obtain paperwork at a later
date to correct or confirm the figures used.
Estimated:- you cannot confirm the figures, as you cannot
find or retrieve paperwork.
It
is important to know the difference between the two explanations. HMRC can help
you try and recreate figures if you contact them and explain.
In
terms of the actual consequences of not keeping records appropriately, HMRC may
add interest to your account and issue financial penalties if your figures are
not accurate and you have not paid the correct amount of tax. When talking
about employee personal records generally, the consequences of not complying
with Data Protection guidelines also come with harsh penalties, as well as
causing difficulty for your HR department and line managers, when trying to
sort out any personnel-based queries.
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