Small biz profit & tax...

aeuerby

My husband has been a sole trader for 3 years and this year he has finally made a very samll profit:j:j

I do help him out with the admin side and stuff but don't draw a wage from the company.

So. as I have my own tax allowance can I use that as well as my husband use his and so reduce the tax that would be due on the profits?

If this is possible - if you understand what I mean, would he have to employ me or can we go into partnership? I understand I will also have to start paying NI too.

Thanks in advance.

debt23

Hi,

Ok, two approaches to this as you have said. Obviously any other income you have from a job might sway this one way or the other, but assuming you had, say, zero income elsewhere...........

1) employed by your husband. This is the easiest option for you, but the hardest for your other half. He can offset your wages and NI against the profits, saving him money, but has far more paperwork to do as he will be employing you - ok, this paperwork is not the end of then world (if I can do it, anyone can) but its a factor none the less.

You take the money, and thats it as far as you are concerned.

Note that your husband can only pay you a 'fair and going rate' for what you do - so try not to go mad with your wage demands! (unless your are a solicitor of course)

2) Become a partnership.

This means that both of you will submit tax returns at the end of the year, and (as you said) you have to pay class 2 (I think) NI contributions.

The profit from the business is divided between you both in whatever way you set out when 'forming' your partnership.

Depending on if you do have any other income or not, this may be 50/50 or not - whatever works best for you.

Word of caution of cause, you do not have to set anything out to do with your partnership via a solicitor etc - you can simply do it yourself, but....

As with all partnerships, a bit of disaster planning is sensible - so whilst im sure it would never happen - you do need to think about what if you split up as a couple etc etc.

I think a partnership would probably be your best option - and its really sensible to take advantage of both tax allowances.

As a non business aside note - I love being my wifes business partner, even if I am not 100% involved in the day to day operations - makes us a stronger team (but she is still the boss)

All the best

debt23

debt23

Oh ,PS, forgot to say....

Well done to your husband for turning a profit - its not allways easy to do!

:beer:

debt23

aeuerby

Thanks for that debt23 I really appreciate it.

I think we may now contact the tax office and ask them a few questions but I think partnership may be the way to go.

We don't have any other income which is why it is very very nice to make a profit in the 3rd year of trading. It has been a very hard slog and we have massive debts hence being on the MSE board but hopefully the only way is up!

The business was started with no financial help from anywhere which has made it much harder...

On a personal note regards having a legal partnership contract. It is something to think about and I never say never but....
We have been together for 17 years, hubby has been "under my feet" at home for nearly 5 years and it's very very rare we fall out, but you never know I may woo Robbie Williams and then who knows :D:D

ukbill69

You can get £415 per month without paying tax or NI.

pootle666

You don't say what the result of the business in the first two years were, but if he made losses these can be carried forward & set against the profit he's made in this third year. If that's the case, you may not have to worry about tax straight away.