Paying cash in hand

KaelaH
KaelaH FMAAT, AAT Licensed Accountant Posts: 131 ? ? ?
I have a client that works from home and pays a member of her family to clean the house once a week. This is paid in cash and the cleaner is not self-employed as she does it as a favour and to earn a few extra pennies. She also has a job so is over the personal allowance already.

So, my question is, how is the best way to deal with this?
My client and her husband are a partnership working from home so not currently reg'd with PAYE. They only claim a small proportion of the cleaning costs against their income as they're aware that most of the cleaning is their dwelling not workspace.
Do they need to "employ" the cleaner or is there a simpler way?

Comments

  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    Employ her and insist that she is self-employed (a weekly bill from the cleaner should suffice).
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    KaelaH wrote: »
    I have a client that works from home and pays a member of her family to clean the house once a week.

    Sounds like a personal expense to me.

    Consequently I'd probably post the cash to drawings and then factor cleaning costs into a use of home calculation (which I would post through capital introduced).
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    T.C. wrote: »
    Employ her and insist that she is self-employed (a weekly bill from the cleaner should suffice).

    That's patently unfair on the employee - who is an employee and would fail any tests of self employment. The worker shouldn't have to incur the hassle and cost of doing self assessment.

    The employer needs to run a domestic PAYE scheme. Don't forget your MLR obligations if they choose not to do this.

    I know it's a pain, but this money needs to be taxed and it's the employer's responsibility to do this.

    The other alternative is to completely turn a blind eye which would put them on a level playing field with all the other cleaners being paid cash, but would be unethical.

    Sorry - it's one of those really annoying ones you wish you didn't know about.
  • villapb
    villapb Registered Posts: 357
    Errr Monsoon unfair on the employee thats pushing it a bit lol..........isnt it the responsibilty of the employee to declare income too. I will run round the office if in an investigation the revenue picked up that the cleaner etc etc........mountain out of mole hill springs too mind. ps im with reader and its the responsiblity of the family member but if started to employee 19 cleaners then im with monsoon..............
  • villapb
    villapb Registered Posts: 357
    ps run around the office naked ..........................
  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    villapb wrote: »
    Errr Monsoon unfair on the employee thats pushing it a bit lol..........isnt it the responsibilty of the employee to declare income too. I will run round the office if in an investigation the revenue picked up that the cleaner etc etc........mountain out of mole hill springs too mind. ps im with reader and its the responsiblity of the family member but if started to employee 19 cleaners then im with monsoon..............

    I like that answer - that was my thinking!
  • groundy
    groundy Registered Posts: 495
    T.C. wrote: »
    Employ her and insist that she is self-employed (a weekly bill from the cleaner should suffice).

    Is this not a contradiction? :001_smile:
  • KaelaH
    KaelaH FMAAT, AAT Licensed Accountant Posts: 131 ? ? ?
    Monsoon wrote: »
    That's patently unfair on the employee - who is an employee and would fail any tests of self employment. The worker shouldn't have to incur the hassle and cost of doing self assessment.

    The employer needs to run a domestic PAYE scheme. Don't forget your MLR obligations if they choose not to do this.

    I know it's a pain, but this money needs to be taxed and it's the employer's responsibility to do this.

    The other alternative is to completely turn a blind eye which would put them on a level playing field with all the other cleaners being paid cash, but would be unethical.

    Sorry - it's one of those really annoying ones you wish you didn't know about.

    I totally agree with you Monsoon, I wish I didn't know about it!!
    Trouble is, client & her husband are childminders. The children they take care of basically use part of the downstairs of the property so once a week the husbands sister comes in and gives house a good clean.
    They claim 1/3 of the cost of the cleaning through the business as they are prudent enough to recognise that their living areas are nothing to do with the business (I wish some of my other clients thought the same way lol!!)

    I know the income should be being taxed but really also feel that it is somewhat overkill if they need to register as an employer to pay for 4 hours cleaning per week, in which only 1/3 is atributable to business anyhow. Surely there is a simpler way.

    Ahhhh, what do I do? Do i tell them its easier if they didn't get the house cleaned in this way? It's morally wrong of me to turn a blind eye so the option of "just pay her out of your own pocket and don't claim it through the business" isn't an option, or is it?
  • uknitty
    uknitty Registered Posts: 591
    I'd just register them as employers and and file nil returns.

    If the amounts are really that low then there won't be that much work to do. You could just download and use the HMRC calculators to process the "wages" and keep the P11 records.

    With RTI looming and the impact on things such as working and child tax credits (which in turn brings with it the need to keep an accurate record of the hours worked as opposed to just the amounts earned) that it is more important than ever to do things "by the book".

    It may only work out that 1/3 of the wages are apportioned to the business, but 4 hours extra work a week could make a big impact on someones tax credit claim. As much as you may want to turn a blind eye, you really can't. I know it is small indiscretion in the grand scheme, but you can't be seen to condone under the table payments.
  • KaelaH
    KaelaH FMAAT, AAT Licensed Accountant Posts: 131 ? ? ?
    uknitty wrote: »
    I'd just register them as employers and and file nil returns.

    If the amounts are really that low then there won't be that much work to do. You could just download and use the HMRC calculators to process the "wages" and keep the P11 records.

    With RTI looming and the impact on things such as working and child tax credits (which in turn brings with it the need to keep an accurate record of the hours worked as opposed to just the amounts earned) that it is more important than ever to do things "by the book".

    It may only work out that 1/3 of the wages are apportioned to the business, but 4 hours extra work a week could make a big impact on someones tax credit claim. As much as you may want to turn a blind eye, you really can't. I know it is small indiscretion in the grand scheme, but you can't be seen to condone under the table payments.


    I think you're right and, although i know its not going to please my client, here goes........

    Thanks for your comments
  • uknitty
    uknitty Registered Posts: 591
    KaelaH wrote: »
    I think you're right and, although i know its not going to please my client, here goes........

    Thanks for your comments

    If the wages bill is really that low, then there won't be any employers NIC to pay, so really I don't see why it would make that much difference to them from a business point of view ? I can't see what reasonable objections they could have other than wanting a family member to undeclared taxable income.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    villapb wrote: »
    Errr Monsoon unfair on the employee thats pushing it a bit lol..........isnt it the responsibilty of the employee to declare income too.........

    Yes it is the responsibility of the employee to declare income BUT can you imagine if you worked in Tesco and they said, oh, we aren't giving you payslips, you need to contact the tax man and sort it out yourself, pay an accountant to file your own tax return, or get stressed doing it yourself? Obviously Tesco would not say that, but you get my point.

    My point is, an employee is entitled to have their taxation taken care of by their employer. It is the responsibility of the employer in the first instance to look after things as the law requires.. If the employer flat out refuses then yes, the employee has a duty to declare their income, or decide its not worth their bother and quit the job. Or take the cash and not declare it, and take their chances.

    Don't get me wrong, I think it's bloody ridiculous that someone would have to go through the rigmarole of having a PAYE scheme for someone working 4 hours a week etc. I am sure that some accountants 'in the field' will use, erm, discretion, and possibly take a pragmatic view/ turn a blind eye.

    However, this is a public professional forum and so I am obliged to give the correct professional answer.
  • villapb
    villapb Registered Posts: 357
    monsoon sorry understand just had my real world hat on when i posted ................wink wink
  • villapb
    villapb Registered Posts: 357
    ps still think i would not have to get naked though..................
  • villapb
    villapb Registered Posts: 357
    imagine 4 hours at £6.19 a hour.........omg the revenue will be straight into inforcement..............
  • Rachel
    Rachel FMAAT, AAT Licensed Accountant Posts: 349 Dedicated contributor ? ? ?
    Look after the pennies and the ££'s look after themselves.

    The issue is that the cleaner is employed already and therefore used her personal allowance. She owes tax on her part time earnings whether as an employee or self employed.

    It is not fair on everyone else who pays their dues. It maybe seen as small but their are so many of these small business setting up now cleaners, cake makers, crafts it mounts up!

    Sorry rant over
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    Is the cleaner really an employee?

    I paid my cleaner on a self-employed basis.

    She decided when she would work.
    She was in control of how she worked.
    She brought her own equipment.
    She could send a substitute if she was ill.

    Each case is different but I'm struggling to think of an argument in favour of her being an employee.
  • villapb
    villapb Registered Posts: 357
    The Revenue get the dues one way or another.........that much i do know. I wonder if the mps worry about tax for their cleaners..........i doubt it and they flaunt ir35 rules too.........rant over.
  • villapb
    villapb Registered Posts: 357
    Dean maybe ir35 for MPs applies as the rules seem to fit .................
  • uknitty
    uknitty Registered Posts: 591
    It isn't just the hourly rate that is in question. The hours worked per week contribute to the amount of working tax or child tax credit an individual can claim. It also impacts on an individuals ability to claim certain other benefits.

    If it is only a few quid, then I don't see what the harm would be to either the employee or the employer in reporting the income. It won't affect the Tax or NI of either party if they are under the respective thresholds. It would only take 10 mins to register as an employer online and no more than a few minutes to generate a payslip.

    I can't think of a justifiable argument to not process the wages in the appropriate manner - other than someone has something to hide !
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    I can think of plenty.

    Let's start with.. cost of running payroll? Easy when you know how but most people don't so will be paying someone to do it.

    Cleaner is bound to be taxed more as they won't be able to claim any expenses as an employee.

    Employers liability insurance? Holiday pay? Sick pay? Pension entitlement?..
  • villapb
    villapb Registered Posts: 357
    plus the cleaner wont clean anymore lol...................
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Employers liability insurance?

    I briefly employed a domestic cleaner a few years ago. This was covered as standard in my house insurance. Just as an aside for future reference :)
  • villapb
    villapb Registered Posts: 357
    My wife briefly employed a domestic cleaner a few years ago. It was ME.................and im still doing it...............
  • Gem7321
    Gem7321 MAAT, AAT Licensed Accountant Posts: 1,438
    I'm with Dean on this one
  • JodieR
    JodieR Registered Posts: 1,002
    just to throw a spanner in the works here... have a look at this post and the link to HMRC's site... it was mentioned on a CPD event I attended recently but not something I'd thought about since until now... http://www.accountingweb.co.uk/anyanswers/peculiar-ni-treatment-self-employed-cleaners/497260
    I've not read through all teh comments yet so sorry if it doesn't apply in this case or it's missleading!
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