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bigduckontax, Accountant
Category: Tax
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PAYE Enquiry.We have a client who is an agricultural contractor

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PAYE Enquiry.
We have a client who is an agricultural contractor which is a seasonal business but he retains one full time employee on the PAYE system. For six months of the year he requires tractor drivers and calls upon a pool of people as and when required depending on the weather and the volume of business. Some of these people are registered as self employed in their own right as farmers etc. Our client normally pays them various lump sum amounts at irregular intervals and did not recognise them as employees. His business was subject to a PAYE visit and the inspector now wishes to income tax and national insurance contributions to the payments which is an effective 45.8%charge. The inspector is arguing that they can only be treated as self employed if they supply their own machinery. Whilst our client did not obtain P46's no person was paid in excess of annual personal allowance and for many weeks they were paid less than the lower NIC rate, due to the nature of the engagement. What counter arguments can we legally put forward?
Hello, I'm Keith and happy to help you with your question.

I doubt the Inspector's test that these persons can only be treated as self employed if they provide their own machinery. It's a good one, but would not stand up against a formal invoice raised by a person already accepted by HMRC to be self employed. It's a no brainer!

The fact that many of these persons were paid under their personal allowances or below the NI lower threshold is irrelevant. Your client is not privy to their other income earning activities. If they are not self employed of the type I indicated in the paragraph above then your client should have taken P46 action, obtained tax codes for them and paid them under PAYE, reporting payments made monthly on line in the normal manner.

So, in fact, I would suggest that the Inspector is half right. For self employed invoices must be obtained, otherwise operate PAYE. If the self employed won't provide invoices then P46 them and operate PAYE. In this way your client will stay within normal taxation rules and should have no more difficulties.

I can understand the Inspector's position. This area is a Tom Tiddler's ground for tax evasion. It isn't in your client's interest to be involved, after all the payments made will be offset against tax, but all we men of the world know about 'cash in hand' activities, don't we?

I do hope I have thrown some light on your quastion.
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