Can I reduce my tax bill by paying employing my wife?

alanfp

Really sorry if this has been discussed elsewhare but I've spent a bit of time searching and not come across anything.

Basically, I'm trying to avoid paying higher rate income tax next year so that I can still receive child benefit (assuming the govt plans don't change) - and yes, I know I could pay increased pension contributions.

So...
Could I start a company and pay my wife say £6k p.a. (she would still be well under the H/rate threshold) in some sort of loss-making venture, e.g. trading on ebay - though technically I don't see that I should have to make any trades - my wife could just spend all her time on researching the market or something, but she'd obviously want paying for it. Could I claim that as a tax allowable expense, submit accounts showing a loss in the year, and net that off against my PAYE earnings, bring my income back down to basic rate?

Cheers

paddedjohn

AFAIK you cant do it like that, if you could then everyone would be doing it. If you were self employed then you would be able to get away with it but not PAYE.

HappyMJ

alanfp wrote: »

Really sorry if this has been discussed elsewhare but I've spent a bit of time searching and not come across anything.

Basically, I'm trying to avoid paying higher rate income tax next year so that I can still receive child benefit (assuming the govt plans don't change) - and yes, I know I could pay increased pension contributions.

So...
Could I start a company and pay my wife say £6k p.a. (she would still be well under the H/rate threshold) in some sort of loss-making venture, e.g. trading on ebay - though technically I don't see that I should have to make any trades - my wife could just spend all her time on researching the market or something, but she'd obviously want paying for it. Could I claim that as a tax allowable expense, submit accounts showing a loss in the year, and net that off against my PAYE earnings, bring my income back down to basic rate?

Cheers

Not like that....but there are many ways to reduce your income such as sacrificing a bit of salary and getting a company car...or increasing your pension contributions. Not only do you get a 40% tax benefit you also get the child benefit as well making the investment well worth it. You might need to adjust your budget a bit maybe by increasing the term on your mortgage so it does not affect your lifestyle.

Loopgames

alanfp wrote: »

Really sorry if this has been discussed elsewhare but I've spent a bit of time searching and not come across anything.

Basically, I'm trying to avoid paying higher rate income tax next year so that I can still receive child benefit (assuming the govt plans don't change) - and yes, I know I could pay increased pension contributions.

So...
Could I start a company and pay my wife say £6k p.a. (she would still be well under the H/rate threshold) in some sort of loss-making venture, e.g. trading on ebay - though technically I don't see that I should have to make any trades - my wife could just spend all her time on researching the market or something, but she'd obviously want paying for it. Could I claim that as a tax allowable expense, submit accounts showing a loss in the year, and net that off against my PAYE earnings, bring my income back down to basic rate?

Cheers

In theory - yes. Assuming she doesn't already work or anything. You need an accountant to sort that part out if you are not confident doing so yourself.

I don't understand the other comments..why can't he do it this way? Many family businesses do this whether self employed or ltd. As a self employed person I pay others to work for me - they deal with their tax issues for themselves as they are self employed too. Haven't employed family members but am sure there is nothing wrong with it.

uponahill

I did it for years! I had a self employed consultancy business through which I channelled all of the private work I was asked to do outside of my employment with the government. My wife did all of the research work and all of the secretarial work. This was done to maximise her own personal tax allowance which would have been wasted.
I carried out all of the decision making. There was never a year when I made a profit it was paid as a wage to my wife. The resulting loss was then set off against my PAYE income which resulted in a tax repayment every year.
As an example.

Net Income (after expenses) 2100
Wife's wages 7500
Net loss 5400

Repayment 20% x £5400 = £1080.

It is a common move amongst many MP's even. Their income other than their parliamentary salary (appearance fees, dinner speeches, newspaper articles) is paid via a business in this manner to use up tax allowances of wife and family.

Only now has the media picked up on this as regards civil servants - it's been going on for many years!

HappyMJ

Loopgames wrote: »

In theory - yes. Assuming she doesn't already work or anything. You need an accountant to sort that part out if you are not confident doing so yourself.

I don't understand the other comments..why can't he do it this way? Many family businesses do this whether self employed or ltd. As a self employed person I pay others to work for me - they deal with their tax issues for themselves as they are self employed too. Haven't employed family members but am sure there is nothing wrong with it.

It's the offsetting the loss against PAYE that is not permitted. If he was self employed he could offset the income against other income earnt in self employment but not against a regular PAYE job.

sunnyone

uponahill wrote: »

I did it for years! I had a self employed consultancy business through which I channelled all of the private work I was asked to do outside of my employment with the government. My wife did all of the research work and all of the secretarial work. This was done to maximise her own personal tax allowance which would have been wasted.
I carried out all of the decision making. There was never a year when I made a profit it was paid as a wage to my wife. The resulting loss was then set off against my PAYE income which resulted in a tax repayment every year.
As an example.

Net Income (after expenses) 2100
Wife's wages 7500
Net loss 5400

Repayment 20% x £5400 = £1080.

It is a common move amongst many MP's even. Their income other than their parliamentary salary (appearance fees, dinner speeches, newspaper articles) is paid via a business in this manner to use up tax allowances of wife and family.

Only now has the media picked up on this as regards civil servants - it's been going on for many years!

Trolls are the head of state for under there own bridges so they can do anything, your problem lies in that you claim to have done it in the real world, you havnt so get back under your bridge and you can get back to making up your fairy tales andy.

nearlyrich

I think you will find the figure that matters is how much you actually earn not how much you fraudulently appear to earn, I have a company car and it's added to my salary and taxed as a benefit I also genuinely salary sacrifice to contribute to my pension but my P60 earnings still include the top line figure. If you are earning enough to pay 40% tax you should not be relying on state handouts to bring up your family, and I appreciate that 2 people could earn well over the line between them and still get it and that's why I think it should be either left alone (which we can't afford anymore) or means tested on household income. Lot's of things are not fair....

uponahill

HappyMJ wrote: »

It's the offsetting the loss against PAYE that is not permitted. If he was self employed he could offset the income against other income earnt in self employment but not against a regular PAYE job.

BU****IT!!!

The loss can be set off against any other 'earned' income in the year, set back against a past year or carried forward to another year.

uponahill

sunnyone wrote: »

Trolls are the head of state for under there own bridges so they can do anything, your problem lies in that you claim to have done it in the real world, you havnt so get back under your bridge and you can get back to making up your fairy tales andy.

What on earth is that all about??

Are you suggesting that I haven't done it or that it isn't possible?

I would suggest you get your Butterworths or Tolleys out and read up on this type of exercise as well as the treatment of losses.

antrobus

HappyMJ wrote: »

It's the offsetting the loss against PAYE that is not permitted. If he was self employed he could offset the income against other income earnt in self employment but not against a regular PAYE job.

Wrong I'm afraid.

uponahill wrote: »

BU****IT!!!

The loss can be set off against any other 'earned' income in the year, set back against a past year or carried forward to another year.

Basically correct, otherwise you would not find articles with titles such as 'Offsetting trading losses against PAYE' on the interweb. http://www.taxguide.co.uk/content/offsetting-trading-losses-against-paye

Word of caution; HMRC do sometimes consider whether or not a loss-making trade is actually a 'business' as opposed to a cunning plan. No relief is given where the business is not conducted on a commercial basis and with the view to actually making a profit. (See http://www.hmrc.gov.uk/manuals/bimmanual/BIM75701.htm etc)