PAYE enquiry - forms P46

[Canarygreen]

A client of ours employs waitresses on a part time basis (less than NIC threshold) and has done so for several years.
He has not had P46s signed and this has been picked up by HMRC who are trying to levy tax and NIC on the business.
All employee's have now provided signed letters confirming that during their employment with our client they have not had any other employment and have not received any benefits. In otherwords there income is covered by PAs and is/was below NIC level each week
HMRC is not accepting this and stated that as no forms P46 were signed he still wants the deductions from my client (for 6 years).
I am fighting this but should be grateful to hear from anyone who has had a similar situation and what the conclusion was. Your help would be much appreciated.

Canaryman

[mullet]

Whilst the strict position is that basic rate income tax (no NICs if below weekly thresholds) is chargeable because P46s were not obtained at the correct time, HMRC should deal with the matter on the basis of equitable liability. Your client should provide a schedule of amounts paid (week by week and per employee, not just the annual wages figure from the accounts) and list employee names, addresses and NINOs. He should also, if not done already, obtain retrospective P46s to cover the period worked by each employee.

HMRC should then verify the P46s and trace a record (if any) for each employee. If a P46 is signed at statement A or B and no other source of taxable income has been revealed through internal checks, then the equitable position is that BR tax should not be recovered. This should apply on an employee by employee basis.

If HMRC establish that BR income tax is indeed due, they won't be able to explain precisely why (because of confidentiality) but would probably say something like "I can confirm that I am collecting no more than is equitably due in respect of this employee ..."

All of the above is supported by the guidance in ECH12065. http://www.hmrc.gov.uk/manuals/echmanual/ECH12065.htm

If the employer compliance officer persists in this yield-chasing, refer him/her to the HMRC guidance and suggest that the compliance manager reviews the file. Sometimes yield drives everything that they do, even if they are not really entitled to pursue it. It's close to the end of the year, so maybe he/she needs a bit of easy yield in order to reach a target?

[Canarygreen]

Many thanks msp for the comprehensive response. It is most helpful. I'll follow your suggestions and post HMRC response on here in due course.

thanks again