Does it matter if a related company does the PAYE?

Does it matter if a related company does the PAYE?

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My client has a car sales company and has helped his son set up his own limited company.  As the son is the sole employee, with limited book-keeping resources,  father's company has put him on their payroll, and issues an invoice for the gross plus employer's NI.

It would be preferable to keep everything seperate, but as HMRC are getting the correct payments, and on time, the arrangement seems to work.  I feel that I am missing something, though.  Are any rules being broken?

Many thanks.

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By Steve Knowles
01st Aug 2011 16:32

Employee payments

Son is not an employee of father's company; if he stays on the payroll there will be continuing problems identifying all relevant payments , disallowing , etc

His P60 will incorrectly identify him as an employee of father's company for all sorts of other purposes - tax credits, mortgage application, etc - even redundancy!  This is trouble waiting to happen, even if it may not be strictly illegal.

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By valentino rossi
01st Aug 2011 17:26

How hard can it be

The son needs his own PAYE scheme for his salary from his company.

How hard will it be to set up and operate this. If his salary is set at the excepted norm of £589 per month then no PAYE and NI will be due.

Is your client VAT registered as his is issuing an invoice for services which should be VATable. Then the son's company needs to be registered if he is going to get this back otherwise it is a loss to the son.

Just tell your client to get it sorted. 

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By valentino rossi
01st Aug 2011 17:28

Also

If the son is just an employee of his fathers company, not a director, then Minimum Wage rules will apply and if anything goes wrong he could ask for redundancy from his father as an employee. 

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