Paying Employee Cash

Discussion in 'Accounts & Finance' started by AnnaT, Feb 10, 2010.

  1. AnnaT

    AnnaT UKBF Newcomer Free Member

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    I started a commercial photography business last year and it's now doing so well I want to take on a member of staff. I'm a sole trader but understand that I can do this.

    I have someone in mind to employ and she has requested I pay cash on a weekly basis. I have no problems with doing that as it would also me easy for me. I will obviously be paying her NI and Tax and providing a pay statement with each payment but I wondered if there were any cons to doing this?

    She will have a guaranteed minimum amount of hours with a set daily pay rate but there is potential for every week to be different (if this matters).

    Any problems? I'm thinking mostly with regards to declaring her wages for my own taxes etc (I do my own book keeping then have an accountant draw up my end of year results - at least that's what I will be doing as this is my first tax year).
     
    Posted: Feb 10, 2010 By: AnnaT Member since: Feb 10, 2010
    #1
  2. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    Hi Anna

    Its not a problem to pay cash wages. Just keep a record of it as you would for any other cash expenses.

    Dont forget you will probably need to register with HM Revenue & Customs as an employer. This may help - http://www.hmrc.gov.uk/paye/intro/basics.htm

    Nicola
     
    Posted: Feb 10, 2010 By: MyAccountantOnline Member since: Sep 24, 2008
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  3. AnnaT

    AnnaT UKBF Newcomer Free Member

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    Thank you! I didn't realise I had to register! Will check that out.
     
    Posted: Feb 10, 2010 By: AnnaT Member since: Feb 10, 2010
    #3
  4. Zeno

    Zeno UKBF Newcomer Free Member

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    Your employee does realise that you will be deducting Tax/NI?

    This is often the reason the employee requests payment in actual cash. I would recommend that you pay via bank transfer to be honest.
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #4
  5. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

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    Do remember that you will need to complete an employer annual return as well, in may.

    There are a few responsibilities to paying staff - so you might want ot have a good read at the HMRC site first.
     
    Posted: Feb 10, 2010 By: [email protected] Member since: Nov 4, 2005
    #5
  6. Tom McClelland

    Tom McClelland UKBF Ace Full Member

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    As long as you complete the HMRC paperwork, which isn't particularly onerous, there is no downside to paying the employee in cash if they find that more convenient. Just make sure that you give them proper pay statement/payslip showing the PAYE/NI deducted, and that you pay HMRC what you've collected (probably quarterly).

    And you'll either need a P45 from your employee (from their previous employer) or get them to fill in a P46 (new starter without P45). And also give them a P60 at year end.

    As others have pointed out you should register with HMRC as an employer. And once you've done that register for PAYE-Online so that you can easily submit your annual returns using commercial software like ours or the HMRC CDROM.

    Any decent payroll software will guide you through your obligations.
     
    Posted: Feb 10, 2010 By: Tom McClelland Member since: Feb 10, 2008
    #6
  7. Zeno

    Zeno UKBF Newcomer Free Member

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    It must be the auditor in me talking but I maintain that in the absence of any good reason why the employee wants to be paid in cash (of which I can't think of many in this day and age) it is always better practice to pay by bank transfer.

    In this case, I am not certain if the OP will have sufficient cash on hand to pay wages without requiring a trip to the bank.

    My own view is that HMRC view cash wages as a red flag (regardless of the payroll process behind it) coupled with the every increasing idea that employers aid & abet benefit fraud by daring to pay employees who unbeknownst to them are claiming benefits.

    I realise that none of this is the employer's fault and no harm can come to an employer operating the correct paperwork but surely avoiding the whole issue in the first place simply by making a bank transfer is preferable?
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #7
  8. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

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    Maybe the employee is overdrawn at the bank and so needs cash to live.
     
    Posted: Feb 10, 2010 By: [email protected] Member since: Nov 4, 2005
    #8
  9. Tom McClelland

    Tom McClelland UKBF Ace Full Member

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    Or sometimes the employee's account may be a joint account and they'd rather keep the money out of the hands of their spouse.
     
    Posted: Feb 10, 2010 By: Tom McClelland Member since: Feb 10, 2008
    #9
  10. Zeno

    Zeno UKBF Newcomer Free Member

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    But then if they were working most other companies then that would be tough - payment is by bank transfer, no exceptions.
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #10
  11. Zeno

    Zeno UKBF Newcomer Free Member

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    That's the amateurs way to do it. That way they know you do that.

    What you do is have you wages paid into your own account first then transfer 50% via internet banking with the narrative being your employer's name to the joint account.

    As far as your partner is concerned, you are just sadly underpaid.
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #11
  12. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

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    and maybe that is why he / she is not :)
     
    Posted: Feb 10, 2010 By: [email protected] Member since: Nov 4, 2005
    #12
  13. Tom McClelland

    Tom McClelland UKBF Ace Full Member

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    What has that got to do with the perfectly legitimate decision that some employers might make to legally accede with their employee's inclination to be paid in cash? Whatever the reason for the employee's inclination it has absolutely nothing to do with the employer. Cash payments also suit many employers, where cash business is taken if it can be used to pay the employees it reduces the business's exposure to carrying cash.

    I'd be really interested if anyone can point at a single real world instance where an employer was keeping proper PAYE paperwork when paying in cash and it acted "as a red flag" to HMRC and caused the employer problems. Millions of people are still paid that way.
     
    Posted: Feb 10, 2010 By: Tom McClelland Member since: Feb 10, 2008
    #13
  14. Tom McClelland

    Tom McClelland UKBF Ace Full Member

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    Now you're assuming that the downtrodden spouse gets to open their own mail and/or has any kind of privacy in their internet access. Cash in their hand gives them more control (which may not be much, but even so) than any other mechanism.

    Just MHO, YMMV, and with that I'll bail the discussion because I don't think anyone is going to have their mind changed about this.
     
    Posted: Feb 10, 2010 By: Tom McClelland Member since: Feb 10, 2008
    #14
  15. Zeno

    Zeno UKBF Newcomer Free Member

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    OK, this one was supposed to be a joke. I'll get my coat then...
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #15
  16. Tom McClelland

    Tom McClelland UKBF Ace Full Member

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    OK, :). I did wonder if you were serious, but sometimes subtle humour needs a [/joke] tag.
     
    Posted: Feb 10, 2010 By: Tom McClelland Member since: Feb 10, 2008
    #16
  17. Zeno

    Zeno UKBF Newcomer Free Member

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    I did try it myself at one stage but she just told me that I'd better put some overtime in.
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #17
  18. Tej

    Tej UKBF Newcomer Free Member

    3,339 1,115
    I think the OP should insist on a receipt for the cash paid to the employee.

    Else there is no telling what would happen a few months down the line.

    just my 2 cents
     
    Posted: Feb 10, 2010 By: Tej Member since: Oct 26, 2008
    #18
  19. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

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    But we all know that you are not funny :rolleyes::eek::p
     
    Posted: Feb 10, 2010 By: [email protected] Member since: Nov 4, 2005
    #19
  20. Zeno

    Zeno UKBF Newcomer Free Member

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    Oh really? I'll have you know to when I enter a room people are already pointing and laughing at me, doubtless in anticipation of something funny I am going to say.
     
    Posted: Feb 10, 2010 By: Zeno Member since: Jun 12, 2008
    #20