SME businesses targeted as HMRC ramps up crackdown on National Minimum Wage non-compliance

Small and medium-sized businesses in 11 UK regions are being targeted as part of a crackdown by HMRC on perceived non-compliance with the National Minimum Wage (NMW).

Belfast, Birmingham, Bradford, Cardiff, Cornwall, Cumbria, East Anglia, Glasgow, Liverpool, the North East, and Watford are being specifically targeted by the tax authority. Businesses found guilty of non-compliance will be ordered to pay NMW arrears to workers in addition to increased National Insurance Contributions (NICs).

If a business does not accept HMRC’s initial offer of a health-check meeting, they also risk financial penalties of up to 200% and public naming and shaming.

Many of these businesses could be inadvertently breaking the rules due to their complexity and common misunderstandings around how to accurately calculate NMW beyond an hourly rate of pay.

HMRC has committed more than £27m to tackling NMW non-compliance, with regional enforcement being its main focus. Areas are being targeted based on data suggesting a larger volume of workers potentially being paid below the required NMW rate, as well as intelligence gathered such as complaints made by workers in the region.

HMRC is targeting workers paid in excess of £30,000 per annum. Therefore, Azets estimates that more than 50% of all SMEs in targeted locations could be caught up in the enforcement activity, requiring checks of their business records and hours’ worth of administrative burden, even for compliant companies.

Kyle Newton, head of National Minimum Wage, at Azets UK, the top 10 accountancy and advisory firm which has 72 offices across the UK, said:

“Maintaining compliance with National Minimum Wage is commonly misunderstood, with the calculation made up of several components across five core pillars – it is not just an hourly rate of pay. As an employer, unless you understand these pillars and have policies in place to govern and control each, you are at risk of non-compliance.

“From our experience, it is sometimes the case that enforcement is inconsistent with the circumstances of the targeted business, meaning that often HMRC calculations have applied incorrect assumptions.

“With HMRC continually ramping up enforcement and the government granting the Low Pay Commission further powers to align NMW rates with real living costs, now more than ever there is a greater probability of business facing scrutiny. Employers should take proactive steps to ensure compliance before a letter lands on their desk.”

Many businesses have already received letters from HMRC as part of a three stage process.

Targeted businesses will receive an HMRC nudge letter providing a list of common areas that can lead to NMW non-compliance. The next stage is a letter from HMRC offering to perform a free health-check. Failure to take up this offer will result in HMRC opening up a formal enquiry.

Kyle Newton added: “Effectively HMRC is flooding the post code area, using a variety of methods to gather intelligence to aid its enforcement and collection of National Minimum Wage arrears and penalties.

“Additional tactics include targeting workers directly through a series of letters and social media campaigns encouraging them to check their pay and whistle blow if they believe they are paid below the required rate.

“By taking proactive steps to ensure compliance and mitigate risk, businesses will avoid the 200% legal penalties, protect their reputation, and ensure fair treatment of their employees.”