Hey all!! Hope you are all busybusy, and business is good! I feel like I haven't been on in ages!
I'm just drawing to a close on a job, and I wondered if I could run something by you, to get your thoughts? Regards - related party note and disclosure of this charge in PL, and any further reaching implications.
Company A, is associated with Company B. (Co A is under control of 2 directors, one of whom is in control of Co B)
Co A has contract of employment with one member of staff.
Co A has no PAYE scheme
Co B has scheme, and so has been processing the PAYE for this member of staff, and then, recharges the wages, plus £50 admin, plus VAT to Co A
(Both VAT reg)
If I show wages in Co A PL, wouldn't that look weird? But the contract of employment does mean its Co A that employs?
Will it be enough just to mention that wages of £X are recharged from Co B, whilst contract is with Co, in the related party note?
Is this any different from a company using a temping agency, the temp would come and work for company A but would be employed by the agency (Co B). I think it may be worthy of a note if the employee was one of the directors but not sure it would be necessary in this scenario.
Would you post the temp cost as wages and salaries? I suppose I would post something like that on its own, under "Locum costs" - so as to differentiate the cost and support no PAYE scheme. If I have businesses paying subcontracted admin girls (who work much like bookkeepers, having multi clients) I would show this as admin costs, not wages.
But this is a bit skew-whiff, as the employee is employed by company A by contract.. but his salary goes through company B's payroll.
In my experience, Company B would have the contract with the employee and would recharge Company A, and this would be shown as something other than wages.. management charges, consultancy fees... that's in my experience anyway, and hence why I thought it best to ask about :)
Wouldnt HMRC wonder why there were salaries and no PAYE scheme, in Co A? If investigated, would the simple answer to their query have any other implications, or would it just be "fair enough"
Related party note.. its a transaction with a company under common control, with an invoice and VAT.. hence why I thought maybe a note was needed.
It kind of muddies the water a bit with the contract being with Company A. I think I'd either get that changed or set up a paye ref with company A. I've seen a lot of barely legible notes on accounts so I'm not sure whether anyone ever looks at them! I suppose a belt and braces approach might be to put a related party note of some sort on though.
I suppose the first question to ask is, is anyone being short-changed ... HMRC in particular? If the right sums of money are being paid, then it's probably just a case of getting the process right. But if tax/NI is being overlooked, then watch out!
In my view, Co A pays wages, even if it does so through an agent. I presume, therefore it should also be paying Ers NI. Is it? No doubt, Co B's invoice itemises its charges as Wages, PAYE, NI, Service Charge & VAT? There should therefore be a Wages item in the P&L.
If this is correct, then I don't think a note is needed, but you might have to revise your procedures.
I think this because there is a contract of employment that says so and an invoice evidencing the agency agreement, but I suppose I could be missing something?
Company B pays the NIC, and recharges Co A. So seemingly everything above board, in that respect. I ended up putting a note which detailed the charge from Co B, for payroll services, and, I showed Wages on Co A PL. It could all be explained, IF anyone was really bothered, and it was how the client wanted things.
As for the Co A contract with employee, and the pay going through Co B, I've mentioned it to the client, and suggested they seek further advice.. ACAS maybe, just to be sure there isn't some legal issue.
