Paying employees cash in hand or guaranteed take home pay
What to do about tax and National Insurance if you pay an employee free of tax.
Overview
If you pay someone 바카라 사이트˜free of tax바카라 사이트™ you must get your employee to agree to you doing this and make sure you work out the correct amounts of PAYE tax and National Insurance contributions (NICs) to pay to HM Revenue and Customs (HMRC).
What바카라 사이트™s included
This includes:
- 바카라 사이트˜cash in hand바카라 사이트™ payments
- guaranteed fixed amounts of take-home pay
If you바카라 사이트™re only making payments for part of your employee바카라 사이트™s wages that are free of PAYE tax, and you deduct the employee바카라 사이트™s NICs in the usual way, the rest of this guide tells you what to do.
Exceptions
Contact HMRC바카라 사이트™s Employer Helpline for advice if any of the following apply:
- you pay all of your employee바카라 사이트™s pay free of tax
- you make payments that are free of both tax and NICs
- you pay an employee바카라 사이트™s NICs yourself rather than deduct them from the employee바카라 사이트™s pay - even if you don바카라 사이트™t agree to pay any tax on their behalf
Your employee agrees to have pay free of tax
Before you start to pay them make sure your employee knows what will happen about the following:
- tax refunds - tell them what happens to refunds of tax you바카라 사이트™ve paid on their behalf during the tax year
- true gross pay - the pay they바카라 사이트™ll actually receive will be different to what바카라 사이트™s on their payroll record because you바카라 사이트™ve had to calculate a 바카라 사이트˜true gross pay바카라 사이트™ figure
- statutory payments - be clear about what pay figure you바카라 사이트™ll use to work out if they바카라 사이트™re entitled to statutory payments (eg for sickness or maternity) and how much they바카라 사이트™ll get
Use the gross pay on which NICs are payable to work out average earnings for statutory payments.
Calculating true gross pay
Your payroll software may be able to calculate the true gross pay and the deductions needed - if you바카라 사이트™re not sure, check with your software provider.
If you have to manually calculate the gross pay figure, add the following 2 amounts:
- the true gross pay of the free of tax element of the earnings
- the actual gross pay of the part of the earnings that haven바카라 사이트™t been paid free of tax
To calculate the true gross pay of the free of tax element use the following steps:
- Multiply the free of tax pay by 100.
- Subtract the employee바카라 사이트™s highest tax rate figure (this is 20, 40 or 45) from 100.
- Divide the answer to step 1 by the answer to step 2.
What to report
Report payments made to an employee on a free of tax basis on your Full Payment Submission (FPS). And when you submit your final submission of the year - whether it바카라 사이트™s an FPS or an Employer Payment Summary - show that you바카라 사이트™ve made a free of tax payment to an employee.