LO writes: I run a domestic cleaning business that has grown rapidly and I now have 20 cleaners working for me. My accountant has always said I do not need to put the cleaners on a payroll because they are not employees, but I should make sure they give me invoices to prove they are self-employed. A friend has questioned this advice and says I may be exposing myself to a big tax risk. What should I do? The issue is whether your cleaners are employees or self- employed, writes Jon Sutcliffe, a partner at Kingston Smith.
There are a number of factors that HM Revenue & Customs takes into account when determining the status of workers. For example, do the cleaners control how they carry out their work? Can they provide a substitute cleaner or do they use their own tools? If the answers to these questions are “no”, it is likely that the workers should be treated as employees. If you are in any doubt, you can ask the Revenue for guidance.
If you continue to treat the workers as self-employed, you are strongly advised to have an agreement with them that indemnifies your business for any tax you have to pay if their status is subsequently queried. In practice, this may not be of much value because it may not be possible to trace former workers.
If the workers are to be treated as employees, you should operate a payroll. If they give you a P45, it will set out what tax code to apply to their wages. Failing this, you should get the workers to sign a P46. If they have no other jobs, they will get a full tax allowance, otherwise you will need to deduct basic-rate tax at 22%.
The tax risk mentioned by your friend arises where workers should be treated as employees but you do not have P45s or P46s. In these circumstances the Revenue could demand you pay up tax at 22% on a grossed-up basis, plus interest and penalties for non-filing.
I’M SICK OF DAYS OFF FOR ILLNESS
HM writes: Our employees are taking days off work claiming to be sick. This has disrupted our operations. We question whether the sickness is genuine because only single days are being taken. Our records show the most popular days for calling in sick are Mondays and Fridays. How can we stop this?
Employers can control sickness absence, writes Peter Done, managing director of Peninsula.
First you will need to review any absenteeism system in place, starting with what is in your contracts of employment.
Does your company give sick pay for these absences? Review the roles of the individuals and the impact on your business.
You should keep records of absences and introduce a trigger mechanism that alerts you to look into regular absenteeism and the reasons for it. You need to consider factors such as when they are “ill”, do they have to call in or can someone call on their behalf? Can any member of staff take the telephone call or does it have to be directed to a manager? Do you record the reason and duration of absences? When the employees in question return to work, do they simply resume work or must they have a “back to work” interview? Monday and Friday absences suggest the illness is not genuine — I know of no medical condition that always strikes to provide a long weekend. If there is such overwhelming evidence of fraud, then follow your disciplinary procedures. You can withhold sick pay if you do not believe the absence is genuine. Taking time off when not genuinely ill is fraud and theft and should be treated accordingly.
Finally, always be aware of disability issues and follow statutory disputes procedures, even if a worker’s service is less than one year.
Kingston Smith, the chartered accountant, and Peninsula, the employment-law firm, can advise owner-managers. If you have any questions, write to Business Doctor, The Sunday Times, 1 Pennington Street, London E98 1ST or fax 020 7782 5765. Advice is given without legal responsibility
