A client has recently discovered that one of it's employees has been paying another employee 'commission' from their own paye earnings. This is not company policy and the company has only found this out following the two said employees handing in their notice. The company is almost certain that this 'extra' income hasn't been declared to HMRC by the receiver and they are concerned that should this information become HMRC knowledge that the company will be liable for tax and NI in relation to the transaction. I personally cannot see that they would be held accountable for it as they were unaware and it is a transaction that has taken place after they have calculated the payroll and paid each individual the correct amount through their own PAYE scheme. Any comments/thoughts?
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If the payer has paid it out of after tax earnings, and is not seeking a deduction for it, there has been no loss of tax and nothing for client company to worry about - especially as the arrangement has now ceased as the employees have left.
The only possible loss of revenue that I can see
would be if the donor was taxed @ 20% and the recipient @ 40% (or would have been had he received the payment as his own pay). Given the relationship this seems unlikely.
Agreed - but equally there might have been an overpayment of tax if the marginal rates were the other way round!