From time to time you need a little help in your business and you take on casual workers to fill the gap. The trouble is some want to be paid in cash and others disappear before you have all their details. What steps should you take to stay on the right side of HMRC?
An employer’s lot is not a happy one
You probably know from experience that these days employers must not only pay workers a fair wage for a fair day’s work, but provide workplace pensions, welfare and much more. You also have to act as unpaid tax and NI collectors by operating the increasingly complex PAYE system. An error that results in too little tax or NI being collected can leave you footing the bill. One potential pitfall to watch for is employing casual labour.
Different rules and concessions
At one time HMRC took a more relaxed approach to casual workers where they were employed for a week or less. However, currently the only concession is for short-term harvest workers and beaters for shoots. Broadly, if you employ them for two weeks or less you can pay them without deducting PAYE tax or NI.
Tip. Since the introduction of RTI, the golden rule is that, apart from harvest workers/beaters, you should tackle PAYE for casual and short-term employees in the same way as for permanent staff. This includes notifying HMRC of their starting and leaving details on a full payment submission (FPS).
Not enough time
When you employ someone for a matter of days or weeks, for example a student in the holidays, the chances are they won’t have a P45 from a previous job. So you should give them the usual “starter checklist” to complete to establish the correct code to operate.
Tip. Ask them to fill it in as one of their first tasks on day one. It only takes a minute or two.
Trap. When you pay an employee, temporary or otherwise, who hasn’t given you a P45 or starter checklist, don’t make the common mistake of using the emergency code to work out their tax. You must use code BR, or insufficient tax will be collected and HMRC is likely to ask you to pay the shortfall.
Net pay arrangements
Another trap is agreeing a cash-in-hand amount of pay as this can cost you more than you might think.
Example. Acom takes on a student for temporary work. It agrees to pay him £50 in his hand, per day (which meets the minimum wage requirement). The student is paid for two weeks, i.e. ten working days, but leaves before completing the starter checklist. Acom must account for tax on the employee’s pay using code BR. To arrive at the £50 per day it has paid, it costs Acom £730 (£73 per day) for the two weeks. This means the PAYE tax and NI has cost Acom almost half as much as the pay. Note. Had Acom obtained the starter checklist it could have operated an emergency code, which would have reduced its cost to just over £580 .
Tip. Avoid cash-in-hand pay. Use normal pay arrangements for casual workers to avoid unexpected tax and NI costs.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.