Farmers and other rural employers have been urged to ensure they have the correct paperwork in place for their staff, as HM Revenue & Customs clamps down on rural businesses.

“Rural businesses need to be aware that HMRC is focusing on its affairs,” Penelope Lang, tax director at Smith & Williamson said. “One of the first areas businesses need to look at is the employment of staff.

“Business owners need to establish whether the people working for them are self-employed or employees. HMRC are not always sympathetic where cash payments are made to people who claim to be self-employed but no checks have been made to make sure this is genuinely the case.”

HMRC uses a range of criteria to determine whether a person is an employee or self-employed and that will determine who is liable to collect the tax, and the level of National Insurance Contributions.

The criteria include questions such as:

Is the worker obliged to turn up when the business owner wants or when it fits in with the rest of the individual’s business activities?

Is the business owner obliged to provide work for the individual – eg what happens if a dry weather job is planned, but it rains?

Who bears the risk of the not being able to work – e.g. due to rain?

If the individual has an accident can he simply send someone else in to do the work?

Employers are advised to ensure the correct forms are in place for their employees from the start of employment to their departure from the business. This includes the employment of students, annual tax and NIC deductions, year-end PAYE and NIC returns, and details of benefits and expenses.

Employee accommodation needs to be given particular thought. For example, whether accommodation is tax-free or not, electricity, heating, TV licences and other expenses met by the employer will always be liable to tax and national insurance.