Can my wife sell my software?

JezCooke

OK, so in an attempt to help knock the mortgage down a bit I'm writing a piece of software in my spare time that I hope to be able to sell. The thing is that I'm already a higher rate taxpayer from my day job (PAYE) and clearly giving 40% of any sales revenue to HMRC decreases the earning potential from this project dramatically.

My wife however looks after our kids and so has her personal allowance and standard rate income tax bracket sitting unused. So the question: Is there any reason why I couldn’t license the software to my wife (free of charge) so she can sell it instead? The income from sales would go into an account in her sole name that she could then transfer onto our joint mortgage. Seems like a perfect plan unless I'm missing something (I want tax avoidance not tax evasion!).

If my plan is valid then would my wife have to complete a self assessment form or can she just phone the tax office in April and say “I earned X this year do I owe you some tax?’. Would national insurance come into it too?

JezCooke

Bumpety bump! Anyone? ;-)

Caroline73_2

I would assume that you could be on potentially dodgy ground just by licensing the software to your wife. She would need to do SA and if she got investigated her expenses would look minimal. You would need to be able to justify why it is your wifes company not yours. She would need to be the one buying and selling, doing the work, not you.

If going down that route would be viable. She'd need to register as either a sole trader or limited company (I know nothing of software so don't know if one would be better in these circumstances), and pay NI if her profit was large enough (need exemption form if not).

You can go to business link for advice on starting up. I do agree that when a wife is at home with dependent children her tax allowance should be allowed to be transfered.

Pennywise

Assuming you are legally married and she's not a common law wife, you can just set up a partnership with you both as partners. When it comes to tax, you can allocate all profits to her and none to yourself. There are no problems in this idea, whatever others may say. HMRC brought in a rule that tried to apportion taxable profits to the person actually earning the money, but they lost a court case on the grounds that real transfers between husbands and wifes (and vice versa) were exempt, so basically as long as she is a "real" partner, i.e. joint bank account and you are both equally liable for eachothers business debts, etc., then it is perfectly acceptable for all profits to be allocated to her. To do this, there'll be three SA tax returns each year, one for you each individually showing your total declarations and one for the partnership showing its profits and how they are allocated. You could do the same with using a limited company but you'd have more formality and bureacracy to deal with and run higher risks of penalties etc for getting things wrong or being late with returns.

JezCooke

Thanks for the replies, somehow thought it wouldn't be simple!

Pennywise, yes we're legally married. Is the the case that you were referring to? http://business.timesonline.co.uk/tol/business/law/article2138387.ece

I figured that it would normally be an issue to transfer an asset (i.e. the software license in this case) below its true value to avoid tax, but as you said transfers between spouses should be exempt from this.

Caroline73, I agree it would be much simpler/fairer if spouses tax allowances could be simply combined. I could rant about that but there's plenty of other threads on that subject, I don't suppose HMRC are keen on the idea!

At this stage I don't know if it will sell enough copies to warrant the effort, maybe I'll start in my own name then speak to an accountant if it takes off.