There is a lot of discussion this week of a setting in the midlands that has just closed its doors following a PAYE investigation which has left them facing liquidation. A horrible circumstance for all involved, but one you can easily see occurring in many settings.
So many settings are grown through a desire of the owner to find suitable childcare for their own child, and so many practitioners continue to work in the sector for the same reason. It’s not uncommon for a setting to offer a discount to staff for their own childcare, but you must be careful about how you process it. This particular setting fell foul of HMRC as they were deducting the cost of childcare direct from the gross pay for their staff, essentially paying them below minimum wage, and avoiding tax and deductions to boot, with this apparently going on for up to 10 years or more. The standard penalty for this tends to be back pay for the staff, back pay for HMRC, as well as stiff fines.
Many staff arrangements for discounted childcare are relaxed in their nature, but this shows us that even when working with parents who also happen to be staff, you need to be following your standard invoicing system, keeping arrangements for your payroll and your staff’s personal invoices completely separate. In most cases, unless the discount is substantial enough to be losing you money, i.e discounted beyond ‘cost’, the discount is not classified as a taxable benefit, so as long as you pay your staff and then they pay their invoices, there is no concerns.
From a valuation viewpoint, as well as the chance of large amounts of tax and fines to be paid, you should also remember that if you are operating and then sell as a limited company, then your purchaser is liable for all historical transgressions there may be. A previous tax investigation or one occurring during the sale process will likely either scare your buyer off, or have them looking to discount or defer some of the sale price ‘just in case’, with you tied up in warranties and indemnities to gain what is left. Better to review your processes sooner rather than later and make sure you are following the rules.
