Settlement of Revenue enquiry
I have a client (partnership) that employs a secretary. A few years ago the client entered into an arrangement with the secretary to pay a contribution towards the cost of child care during office hours. This was apparently meant to be a private arrangement. Payments were made directly to the day care centre and via the partnership bank account, though were posted to partnership drawings in the accounts.
Following a PAYE audit, the payments were picked up and a bill for back tax and NIC has been drawn up with a letter of offer. No relief has yet been given in the client's accounts for the child care payments. As the payments were made from drawings and no relief has been given, our argument is that no tax has been lost. The client is a 40% tax payer and the secretary earns in excess of £8,500 when the benefit is included. What is the best way to proceed with the Revenue, who are demanding tax, NIC and 100% penalties?