NI saving scheme??

NI saving scheme??

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A prospective payroll client informs me that his current accountant saves the firm's staff an element of their NI bill by paying them £94 each weekly by standing order and then the remainder of their salary as a 'bonus' via the monthly payroll (running 5 payrolls per staff member per month!). He says this has no effect on the er's bill but does on the ee's. Has anybody else ever heard of this and know how it works?
Sarah

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By User deleted
04th Mar 2006 09:42

Why bother?
Why do some people go to such bother for a few quid saving?

It's much easier just to pay them in cash and say nothing to the taxman.

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By adam.arca
06th Mar 2006 13:32

Long-standing tactic
Isn't this a long-standing way of trying to avoid NIC? My training partner told me about it at least 15 years ago. However, he also told me that since (almost by definition) a regular bonus is not really a bonus at all but simply deferred regular pay, the PAYE regulations expect you to spread the bonus over the pay periods affected and calculate the NIC on those higher amounts, thereby eliminating the possibility of NIC avoidance.

Haven't admittedly checked this in the manuals but I would be interested in knowing what quirk, if any, the tax mag have introduced in order to get round the regs.

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By AnonymousUser
04th Mar 2006 15:22

PAYE savings!
Hi all

Yes it does work and was wrote about by indicator publishing.

If a client has a PAYE compliance visit all the inspector can do is notify them not to continue paying this way. The inspector CAN NOT force backdating, they hav'nt got that authority!!!!

One or two of our clients have done this (those that subscribe to Indicator Publishing) and have used it as a way to boost the take home pay of their staff without costing them any more money.

To ensure it is not seen as contrived I would also recommend that the staffs contract of employment are amended to relect what takes place on the Payroll.

Cheers
Neil @ DeMason

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By neileg
06th Mar 2006 10:33

Pay periods
HMRC can't cope with the same employee being paid both weekly and monthly. We have to deal with the situation when we have staff on two different contracts of employment with different pay frequencies. In this case the advice from HMRC is to treat each employment as a stand alone. It gets more interesting when the employee is sick, but capable of doing one of the jobs!

I'd be a bit sceptical about having two different pay periods for the same employment, but it sounds like this is what is being used.

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By AnonymousUser
03rd Mar 2006 13:57

My gut reaction is..
..that they would be termed to be associated employments so they should be rolled together - the fact that it sounds like they are actually the same employment makes it even worse I would guess.

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By AnonymousUser
03rd Mar 2006 14:38

Weekly payroll
I've heard these schemes suggested but not seen one in practice. I would have thought there might be minimum wage complications if they are being paid £94 per week for three weeks and then a bonus in week four.

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By User deleted
03rd Mar 2006 15:19

NIC avoidance
Because NIC is not cumulatively charged on earnings, but has weekly limits, the employer is avoiding employees NIC if the bonus payment takes the employee over the weekly maximum threshold in the week it is paid.
If there is a true 'bonus' calculation each month, based on business performance, then it MAY be OK. But if it is purely artificial, which it probably is, then HMRC can direct that monthly NIC limits are applied and the scheme will not work. I had a similar case on a new client from another firm. The first PAYE inspection resulted in the officer pointing out the regulation and instructing the change to be made. We did so, and that was the end of it. I believe the officer had the power to go back to earlier years and issue assessments on the employer for the NIC unpaid, but decided not to in our client's case. In this case it could be expensive if an officer reassesses any earlier years.

Also, as the figures on the P14 may look a little odd, (ie high pay, but low employees contributions) the PAYE records may be more likely to be picked for review by the local office.

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