Where employees are engaged under a gang, squad or ‘butty’ system, tax is deductible under PAYE in respect of their earnings. In most cases, the responsibility for deducting tax and maintaining the deductions working sheets will remain with the principal employer, i.e. the employer of the gang leader, not the gang leader himself. However, if the gang leader is not, himself, an employee, but an independent employer of the members of his gang, it will be his responsibility as an employer to operate PAYE in respect of the wages he pays and to keep the deductions working sheets. In that case the principal employer would have no responsibility for under-deductions of tax and NIC.
Where a trader claims a deduction in his accounts for payments to gangmasters, the inspector will ask for the names and addresses of the recipients. Where such details are not provided or are found to be false, HMRC will generally seek to recover from the trader the tax and NIC which it appears to them has been lost. Clients who make such payments should, therefore, be advised to obtain the names and addresses of any gangmasters who supply casual labour for their business and to take steps to verify these details.
Furthermore, they should be encouraged to seek advice on the status of the gangmaster to determine whether or not he can be treated as self-employed and an independent employer, responsible himself for operating PAYE on the wages paid to the members of his gang. If required, guidance may be sought from the inspector in this matter and clients should be made aware that if this question is not properly resolved and it turns out that the gangmaster was himself an employee (i.e. not self-employed), the principal employer will be held responsible for any under-deduction of tax and NIC in respect of all the members of the gang.
To improve the tax compliance by agricultural gangmasters, HMRC have set up a special unit (the Agricultural Compliance Unit) to ensure that gangmasters who are self-employed deduct and account for PAYE tax and NIC from the earnings of their workers, and make proper returns of their own business profits.