The next step

To HMRC's rules on seasonal farm workers

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To HMRC's PAYE: starter checklist

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Summer workers PAYE tax and NI trap

PAYE basics

The introduction of PAYE RTI meant some of the long standing rules and practices for employing casual workers, particularly students, had to be scrapped. With the exception of seasonal farm workers to which special rules still apply, other short-term and casual employees should be treated in the same way as permanent staff.

Cash in hand

While HMRC is a stickler for rules it can’t tell you how to pay your workers, so if, for example, you want to pay a student on their summer break cash in hand to jet wash the outside of your premises, you’re entitled to do so without the Taxman objecting. However, PAYE still applies.

Tip. If the work is being done on a self-employed basis you don’t need to worry about PAYE at all. But be careful to agree terms of work that don’t create an employer-employee arrangement.

Net pay arrangement

Where your intention is to pay an employee cash in hand you need to take account of the tax and NI consequences. HMRC expects you to meet the cost of the PAYE tax and NI due using what it calls a net pay arrangement. This can increase the cost of paying casual workers more than you might think.

Example. Acom takes on a couple of students for three weeks, at £230 per week, to tidy and clean its store rooms over the summer holidays. Because they come and go in a short period it doesn’t have time to get the normal tax paperwork sorted before it pays them. This means Acom must apply a basic rate (BR) tax code to their pay, and because it’s agreed to pay them cash in hand it, and not the students, must pick up the PAYE tax and NI bill. The table below shows how much that will cost Acom:

The tax and NI has increased the cost of taking on temporary summer labour by 45%.

What’s the normal tax paperwork?

You should issue casual employees with HMRC’s Start checklist (see The next step ), or your own version of it. As long as they return this completed before you pay them you’ll avoid the net pay trap.

Tip 1. Tell the employees they won’t get paid until they return the completed checklist, or better still get someone to stand over them until it’s done - it shouldn’t take more than five minutes. Even then in some situations a code BR might apply.

Tip 2. A simpler solution is not to pay casual workers on a net pay basis. Instead pay them gross, i.e. before tax and NI, like your regular employees.

For links to HMRC’s rules on seasonal farm workers and its Starter checklist, visit http://tipsandadvice-business.co.uk/download (CD 16.20.02).