Self Employed - employing the wife!

signman_2

My wife has just been made redundant and as I am self employed I was thinking of employing her until she gets another job and paying her some wages to keep her mind busy and maybe reduce my tax bill.

So what is the maximum I can pay her per week to avoid PAYE and NI payments. Hopefully she may be usefull and fully utilize her personal allowance. I understand she will have to add this to her tax return and I would have to list as casual labour ?

Any help appreciated.

Thanks

fengirl_2

The NIC limit is £104 pw. HMRC will want to see real evidence of employment, ie that she is being paid the NMW, there is a contract and that she is really working.

Pennywise

Forget national minimum wage - spouses are exempt. You should pay her a reasonable hourly rate for the time she spends, commensurate with the work she does. For example, if she is primarily doing book-keeping, and book-keepers are paid say £10 per hour in your area, then pay her £10 per hour for the hours worked. You have to be able to justify the hourly rate as not being too high and to justify the time she spends, so it would be wise to keep some form of records as to time and nature of work in case of enquiry.

To get the "best" result, she should be paid abount £100 per week, which is high enough to count towards state benefits, without actually incurring any NIC costs. If you can justify this amount, you need to register as an employer and complete annual returns for her to secure her state benefit entitlements.

And final point is that you actually have to pay the wages to her, so you need an entry in your accounting records showing wages payments.

signman_2

Many thanks, especially Pennywise..

RainMaker_2

Pennywise wrote: »

You have to be able to justify the hourly rate as not being too high and to justify the time she spends, so it would be wise to keep some form of records as to time and nature of work in case of enquiry.

That's a new one on me ! Are you saying the revenue have some sort of cap on allowable wages paid, dependent on the type of work done ?

A reference would be much appreciated.

johnllew

RainMaker wrote: »

That's a new one on me ! Are you saying the revenue have some sort of cap on allowable wages paid, dependent on the type of work done ?

A reference would be much appreciated.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM37735.htm

Must be wholly and exclusively for the purposes of the trade

When considering a claim to deduct wages paid to relatives or connected persons you should look to establish that the reason for payment is wholly and exclusively for the purposes of the trade. If there is another reason (either in addition or instead) then the deduction will not be allowable.

The deductibility of payments made to minor children and said to have been wages was considered in Dollar & Dollar v Lyon [1981] 54TC459 (see BIM37737).

The Courts considered the deductibility of wages in respect of the taxpayer’s wife in the case of Moschi v Kelly [1952] 33TC442.

RainMaker_2

Thanks for the HMRC reference John. About as clear as mud, as usual !

stphnstevey

Do you have to justify dividends in the same way as justifying wages to a spouse? (currently that is - I am aware of impending income shifting legislation)

RainMaker_2

No. Dividends are a means of distributing company profits, after tax.

Hugh_jarsole

I have a full time job plus work part time as a photographer. I recently did a wedding and my 17 year old daughter helped me for 7 hours so I bunged here £35 for her savings and cos I am a generous dad. Can I claim that 35 quid in my book keeping as tax deductable?

Many thanks in advance

Happy New Year

Hugh