Another doctor client this week has commenced private practice – but fortunately he has asked the right questions before starting up – including – “how should I pay my secretary?”
This is a common payment for their help in the private practice. Quite often a payment is just made with no deductions without consideration of the tax or NI position. Is the recipient secretary really self-employed, and does she declare the income and pay tax and self -employed NI contributions?
If this were to be looked at closely by HMRC- an increasingly likely scenario – they would almost certainly insist that the secretary was an employee rather than self-employed. She may be paid different amounts each month, or she may “work for three or four other consultants and is therefore self-employed”, but the facts are that the consultant is providing work on a regular basis and the arrangement bears most of the important badges of employment.
HMRC have several tests to determine employed or self-employed, such as the requirement to receive sick or holiday pay, the right to provide a substitute worker, etc. It is not a question of simply ticking off on a checklist – if you have a steady arrangement with someone who works for just a few people, the position risks being classed as employment.
From a tax viewpoint, both parties would probably prefer to be dealing with a self-employed arrangement. The consultant would not need to run a payroll and would not need to potentially pay Employers National Insurance Contributions, while the secretary would pay a lower rate of NIC and could be claiming for business expenses that are not available as an employee.
Anyone doing this is at risk. The worst case scenario would be for HMRC to insist the secretary should have been treated as an employee, and the gross amount paid by the consultant is viewed as net salary, with the consultant then being held liable for the tax and NIC that should have been deducted, as well as potentially interest and penalties.
Take the appropriate action now and get a PAYE scheme in place. If the consultant’s wife is paid (a justifiable salary commensurate with the work done) it may be beneficial to ensure a PAYE scheme is in place for her salary too, as she may be entitled to state benefits at no cost.
Ask us for details…..
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