Minimising the PAYE burden on a business.

signs_of_recovery

My father in law's former business employed me as it's only full time all-year-round employee.
Other workers were taken on as needed. (The business ran one large event once a year) So we had around 10 - 12 people working for two months, and a further 12 or so people working only over the Saturday and Sunday of the event. We paid a flat £8 an hour, and we paid their tax and NI on top of this. The two day-ers earned around £160 + their tax and NI for the weekend. Our liabilty to HMRC was just over £6000 last year, and looked as if it was going to be around the same this year except that the company went into liquidation a couple of months ago.
As I am seriously considering taking on the event (running it without the extra event that tipped the company into debt) I am really keen to find out how I can minimise our liability to HMRC for tax etc.
Has anyone any suggestions?

glider3560

Surely if you set up a new company, then it won't owe any money to HMRC? The old company (which is in liquidation), still does.

signs_of_recovery

glider3560 wrote: »

Surely if you set up a new company, then it won't owe any money to HMRC? The old company (which is in liquidation), still does.

Sorry, I should have been clearer.
I envisage the wages and therefore the HMRC liabilities at the end of 2010 being much the same as the old company's ones. I'm just trying to project into the future.
So given that senario, is there any way to minimise the liability. I understand that the old company owes money to HMRC for 2009 and it's nothing to do with the new company.

Rolo_Tomasi

If you set up a Ltd company then you could draw a minimum salary and dividends which would reduce the PAYE/NIC on the only full time employee. There are many other considerations of the legal entity for a business so please do not get blinkered into just looking at the tax treatment.

For the employees working for 2 months - if you just employed students who could sign a P38s then there should be no tax on their earnings.

I dont think there is anything you could legally do about the employees who just work the weekend but perhaps someone with more imagination than me will have a suggestion.

TM1976

The method of paying £8 + tax and NI is a bit irregular and could result in you paying more dependent on the tax, you also might be paying more tax than the individual actually has due if you set them up on a BR code. The cost of this could be more this year with NI going up.

I'm not sure that this arrangement really is a employee arrangement, could you get away with just paying the gross and asking them to pay the tax? I'm pretty sure an individual can earn £2,500 a year without getting into the self assessment system, (they still have to report it though).

Mikeyorks

signs_of_recovery wrote: »

... is there any way to minimise the liability.

Yes - you pay your employees the going rate but, as is the norm, you deduct the correct rate of tax / NI from that. That way the gross outlay for the company is little more than the gross wages (in PAYE terms - which is your heading)

If you undertake to meet the tax and NI - then it's double jeopardy. As you have to add that benefit back onto the original gross - and then pay tax / NI on the whole lot! Not sensible and will generally strain relations with HMRC auditors - who view such arrangements with suspicion.

Rolo_Tomasi

TM1976 wrote: »

I'm not sure that this arrangement really is a employee arrangement, could you get away with just paying the gross and asking them to pay the tax? I'm pretty sure an individual can earn £2,500 a year without getting into the self assessment system, (they still have to report it though).

I don't think you would get away with this. The Revenue would treat them as casual employees earning more than the PAYE threshold and you are unlikely to be able to confirm their tax status. You would therefore have to operate a BR tax code on the amounts paid.

This is also where the second problem occurs. It is OK on others here to suggest that you operate a normal deduction system but look at it from the workers point of view. They are giving up 20 hours over a weekend and if you deduct tax and nic the normal way and pay them £8 per hour they will receive little more than £120 - you may find it difficult to attract people on this basis.

They way it has been done in the past is perfectly adequate but does cost more in tax. I think you just need to ensure this cost is built into your business plan

TM1976

I think Rolo is probably right here but it depends on the status of the workers.

Here is a link to the status tool : http://www.hmrc.gov.uk/calcs/esi.htm

There are also special rules for some groups such as entertainers.

Also there are special rules for taking on employees for less than a week if they don't provide a P45. http://www.hmrc.gov.uk/paye/employees/start-leave/special/temps.htm