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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