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Oct 4 2024

HMRC cracking down on National Minimum Wage requirements

Since the start of the year, the UK government has signalled they are committed to supporting lower earners through focusing on National Living Wage (NLW) and National Minimum Wage (NMW) provisions. One of the ways they are seeking to protect these workers is by ensuring businesses are obeying the NMW requirements. Recently, HM Revenue and Customs (HMRC) has signalled they are expanding their enforcement of the NMW Act on behalf of The Department for Business and Trade (DBT). As a small business owner, here’s what you need to know.

The law around the National Minimum Wage

The statutory right to be paid at least a certain amount was first introduced by the National Minimum Wage Act 1998. This applies to almost every worker in the UK, meaning they are entitled to arrears if they are paid less than the minimum wage during any pay period. Every employer, regardless of the company size, must pay their workers the correct minimum wage. In calculating minimum wage payments, the following must be considered:

  • Loans or wage advances.
  • Income Tax and National Insurance (NI) contributions.
  • Repayment of overpaid wages and loans.
  • Accommodation provided by an employer (if relevant).
  • Penalty charges relating to worker misconduct.

What is the National Minimum Wage?

At the time of writing, the NMW rate per hour in the UK is:

  • £11.44 for those aged 21 and over.
  • £8.60 for those between the ages of 18 and 20.
  • £6.40 for under 18’s and apprentices.

Employer checks

Officers from HMRC have the right to investigate employers at any time if they suspect the company of failing to pay their workers correctly. During the course of the investigation, HMRC may ask the company to produce payment records. It is the responsibility of the employer to keep records that show they have paid NMW for at least 6 years (5 years in Scotland). Payment records should include individual pay reference periods (how often someone is paid). These can be used as proof of total pay and total hours worked. Although it can also be necessary to record details of working agreements, such as contracts.

Recent changes to HMRC’s approach

Until recently, HMRC’s NMW enforcement has primarily been focused on large businesses in specific sectors. The body is now turning its attention to small & medium sized businesses, with a reported £27 million being committed to NMW non-compliance. Commonly, HMRC will issue a letter informing the company of the areas of NMW non-compliance followed by the offer of a free health check. If they don’t hear back, they usually start a formal investigation.

Any business that’s found to be in breach of NMW legislation could find themselves paying arrears to both present and ex employees going back up to six years. This will be on top of any penalties, which can range from between 50% to 200% of the liability. To make sure you aren’t caught out and end up costing your business a ton of money, it’s important to get professional support in accounting for payroll.

Current locations under review are:

  • Liverpool
  • Sefton
  • Halton
  • St Helens
  • Knowsley
  • County Durham
  • Stockton
  • Middlesbrough
  • Gateshead
  • Sunderland
  • Newcastle
  • Northumberland
  • Redcar
  • Cleveland

Chartered Accountants Birkenhead

As an experienced accountancy firm, Jan McDermott Chartered Accountants has helped many business owners keep accurate records. To help us, we use modern payroll software for accountants like Xero and QuickBooks. Through our Xero integration and training services, we can even help your business get the most out of the software for payrolling, record keeping, financial management, and more. Get in touch if you think we can help.