Low paid staff - filing requirements

Q: I want to take on my first member of staff for 16 hours a week and I’ll pay her the minimum wage for now. What requirements do I have for the collection of tax and national insurance etc, and what do I need to file with HMRC?

A: Unless employees provide you with a P45 from a previous employment, you should always get them to complete HMRC form P46. However, assuming she indicates this is her only job since 6 April on the P46 (box A), you needn’t submit this to HMRC because she will be earning below the Lower Earnings Level (LEL), which for 2011/12 is £102 per week. You can simply file it away until her earnings exceed this level.

Again on the assumption that she ticked box A, you will not need to calculate any tax or national insurance because her earnings do not exceed either of the thresholds. So unless her earnings exceed the LEL, you can simply pay her gross pay.

You will not need to complete the annual forms P14, P60 or P35 either because her earnings were below the LEL. So you have no requirements to file anything with HMRC or provide anything to your employee.

On a practical note though, it sounds like your employee may be claiming tax credits and therefore, she may want you to fill out a P60 for her so that she has evidence of her earnings.

Divorce and personal company

Q: A couple of years ago, I formed a company with my wife. We were both directors and held 50% of the shares each. Last year we split up; her shares were transferred to me and she also resigned as a director.

The company ceased trading recently, and it will be wound up informally. Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for a few months of trading?

A: You qualify for entrepreneurs' relief on gains arising from all your shares, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director throughout the last year of trading.

Therefore any shares you held in the company qualify for entrepreneurs' relief, and you will pay capital gains tax at an effective rate of 10% on the capital distribution (after deduction of your annual exemption of £10,100); rather than tax at 28% or 18%.

Preparing your tax return in the year of a divorce can be tricky, so please feel free to seek professional advice.

Holiday entitlement

Q: My husband and I run a small cafe and have one member of staff. Their hours vary depending on how busy we are.  How much paid holiday are they entitled to?

A: You must pay holiday for all employees- irrespective of the size of your business or the number of hours they do.

Employees are entitled to 28 days/ 5.6 weeks paid holiday per annum. As your employee’s hours vary, you will need to pro rata this for the typical number of days a week they work and the number of hours. You may therefore find it easier to apply the percentage of 12.07% to the number of hours they work in a year instead.

They must give you notice of holiday, amounting to twice as long as the leave requested. But you have the right to refuse permission, provided you give as much notice as the leave requested.

Don’t forget that the leave entitlement runs with the holiday year in their contract. If they don’t have one, the year should start on the day the employee joined. Being seasonal, you may also want to specify when you want your employee to take their holiday; and when you don’t in their contract.

For future reference, holiday entitlement is not restricted to just employees. It also applied to the broader definition of workers, so will also apply to anyone you may have working for you on a temporary, seasonal or casual basis.

At TaxAssist in Grantham, Lincolnshire, we specialise in managing tax and accountancy affairs for small business owners and can be contacted by phone or email

Tel:  01476 590555
lloydstubbs@taxassist.co.uk
www.taxassist.co.uk/grantham

Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.