I have a client that is a charity. It has 7 employees on PAYE. In addition to their normal salary, some members of staff including the chief executive, regularly receive extra payments for work that is deemed to be outside of their job description. The extra payments are made by cheque without the deduction of tax and national insurance I suppose on a freelance basis but no invoices are submitted for the work, the staff are just asked in some cases to sign a receipt for the payment.
Can anyone advise me on what is the correct treatment for these extra payments?
Without knowing what the payments are for it's hard to say really. It could be the repayment of expenses incurred in the course of their jobs, in which case it would not be taxed. If this was the case though you'd see an expense claim form. It may be honoraria expenses for the chief exec, but again I was under the impression these should also be taxed? I think you need to investigate this further to find out more information.
The payments are for other work done : For example one person is employed as an administrator but then designs a leaflet for the company or translates one of the company document into another language i.e translation work. The design or translation work is being paid as an extra payment without deductions for tax and national insurance. Likewise the CEO translates a document and is paid £x by cheque without deductions. They sometimes sign receipts for the payments. These ae not expenses claims.
I have been advising the company to add these extra payments as some type of bonus to their normal salary and pay it through PAYE, this is not winning me many friends. I thought an alternative might be that they submit invoices for the extra work thereby assuming that it is done on a self employed basis. It is becoming really contentious and I want to give the best and the correct advice. Apparently no previous bookkeeper thought it was a problem.
The extra work to me still seems as though it falls within the scope of them being employed, and therefore PAYE is due.
I think your best bet is to get them to give you an invoice for the untaxed work they do. You can then it treat it as self-employed work. This will enable you to account for the expense in the relevant nominal code e.g. professional/consulting work, as the wages a/c is obviously not relevant.
If this causes further problems and you don't receive an adequate response, you may need to consider if this falls within the scope of the money laundering regulations - I suspect it does!
