"Spend to Save" may sound like a supermarket loyalty card, but it is actually the name of a Government initiative to increase its tax take.

As part of this campaign, the Inland Revenue and Contributions Agency have stepped up their programme of PAYE checks on employers. It is increasingly unlikely now that employers can avoid a visit from either the PAYE or NI (National Insurance) inspector.

As those of you that have had visits recently will know, the inspectors concern themselves with checking the employers books and records, with emphasis on the operation of PAYE and what has been included on the forms P11D and P9 (returns of expenses and benefits provided to employees).

They will also check that payments to casual employees and subcontractors have been dealt with correctly. In the case of subcontractors they will be particularly concerned to establish that they are not really employees!

At the end of the visit the inspector will point out any errors, calculate the tax and NI owing and present the employer with a bill. This settlement may well include back years tax and NI, interest and penalties.

Whatever you do, do not agree to settle the bill then and there. Inspectors are set tough targets by their bosses, and are not always scrupulous about he way the settlement is calculated. This is not to say that the inspector would do anything underhand, merely that any assumptions made will tend not to be to the employer's advantage but rather to the governments.

As it is the employer that is being asked to pay what is really the employee's tax bill, the employer will receive a bill which is 'grossed up' for tax and NI, on the basis this would otherwise be a tax free benefit for the employee. When doing this calculation, it has been known for the inspectors to assume that all employees are paying tax at the rate of 40 percent.

As we all know operating PAYE and NI represents a substantial burden to employers. The rules are very complicated, and as a result few employers are likely to get it right all the time. In my experience a visit by the tax or NI inspector is quite likely to reveal one or more errors. Sorting these out can be both time consuming and expensive.

Getting an accountant to review your payroll and PAYE and NI systems, before the inspector knocks on your door, could prove an extremely useful move, as could seeking advice when the inspector asks for payment after his visit. Agree to nothing without advice.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.