the wife as an employee

joeboy_stoke

Hi there,

I have a job and am paid £40,000 by my company.

I am also registering as self employed soon to conduct my own business at the same time. I estimate that I will earn around £14000 in my self employment on top of my paid wage.

If I declare all of my earnings as my own then I lose a large amount of the extra £14,000 on higher rate income tax and student loan.

My wife doesn't work so can I employ her and pay her a wage thus paying much less tax on the profit of my self employment?

Would I be better starting a company in both our names or a partnership or just employ her? Which would get me the biggest chunk of my estimated £14,00 into my pocket instead of the tax man?

chrismac1

Google "income shifting UK tax" to find out the main pitfall in your plan. The crucial issue here is what work your wife will be doing in this venture, and what evidence you'll have in order to demonstrate that.

I like clients in this position to be able to reference third parties. As an example, one wife earns enough to be able to claim a full "NI stamp" for the year, hence pension rights etc. However I have no worries about any HMRC enquiry into the legitimacy of this salary:

1. I have only ever dealt with her for accounts, tax and finance issues.
2. She arranges some of the contracts. Hence there are third party contacts in these customer companies who have dealt wholly or mainly with her.

What you want to avoid is the situation where you put the salary through the books and it's pretty clear to an HMRC visitor that she has little or nothing to do with the business.

On the basis of your post a limited company offers a lot of potential benefits - especially the opportunity to pay no NI at all - but unless the £14k is "in the bag" I'd be inclined to run as a sole trader or partnership initially. Any losses incurred in the early stages can be set off against your earnings in that tax year and hence you'd get income tax back. A limited company can only get loss relief against future profits.

Given the potential complexity of the issues you've already raised an appointment with a local accountant would be a great idea in my view.

joeboy_stoke

thanks for your reply.

What kind of proof do I need to show she is doing work? The nature of my self employment is actually content development that I sell online through the android marketplace.

My wife helps me with the idea generation and development of the content. What would an inspector ask for - make her sit down at a computer and show them that she can program?