Suddenly very worried about State Pension for Fiancee. Help!

audioblackout

Hi guys,

I've run a business for the last 10 years where I agreed to pay my Fiancee an agency fee for getting me work (10% of my income). This fee per year is so small (always less than the Tax Allowance), that we've never thought to even bother doing accounts for her agency or declare her company. After all, I'm her only customer.

I've never really thought about a pension either, sort of presuming that you're automatically entitled to a State Pension. Now after all the press coverage I realise you need to have qualifying years and paid qualifying NIC's. Well, I've definitely been getting the NIC letters from the government, but my Fiancee obviously hasn't.

As we're both 40, this is all quite worrying. What would be best to from here do you think? Should I get her company declared pronto or would it be best to change her to be an employee? Then would I have to pay her NIC's as an employer? And doesn't she need to be earning a certain amount to 'qualify?'. I'm not sure how it all works.

Also, would there be some way of 'back dating' her NIC's? It seems silly having to back date 10 years worth of accounts for her and present them to the HMRC, when she wouldn't owe them any tax anyway. But if it sorts out the issue, well I'm gonna have to do it!

Anyway, really hope someone can help with some good advice. Massive thanks in advance!

atush

She could be considered to be self employed. So she could pay the lower self employed rate of Nics which is just over 2 quid a week. So you need to get onto them pronto and sign her up to pay them. She could probably pay for all this year, but I am not sure how many other years she can buy.

She needs to speak to DWP pronto.

She may have some years though, so have her also get a forcast as she will have them for any years she worked and maybe for age 16-19 too.

gadgetmind

If you'd run things such that she was an employee on the payroll, then it might well have been the case that she'd have paid no tax and perhaps even NI but have had qualifying years for state pension.

I have no idea how you'd attempt to backdate this, doubt it would be possible, and might even trigger awkward questions.

You might be better off getting a pension forecast for her (any years for bringing up kids, or in education?) and then starting from scratch.

audioblackout

Atush, Gatgetmind, I cant thank you both enough for your help here. I really cant.

THANK YOU

I'll reply to this tomorrow in full!

jamesd

I don't suppose she has children and has been getting child benefit for all or part of the time?

audioblackout

Unfortunately no children James.

Looking at the front of this site, Martin has a good article here:

http://www.moneysavingexpert.com/reclaim/increase-state-pensions

So it seems we could pay to get the years up. If that's something we have to do over the coming years, that's what we're gonna have to do.

I fear backdating accounts is a silly thing to do. You're right, it could bring up some awkward questions, even though we have nothing to hide. She's contacting the Future Pension Center and I think it'll be a simple case of deciding do we

a) Register her company and get her on the NIC list (someone mentioned if we get a Certificate of Small Earnings Exception (CF10) then we could be on Class 2, £2-3 per week.

b) Decide to put her on the payroll instead. However, wouldnt this mean bigger NIC payments? Although she defo earns less than £100 per week, I saw somewhere that she would be paying £13 per week instead of the £2-3.

This is now making me think she might be entitled to some kind of benefit with such a low income. But I suppose that's another story.

As always massive thanks for everyone's help here

gadgetmind

Options -
1) Pay her just over Lower Earnings Limit and she'll accrue state pension. With care (DYOR!) no tax or NI will be payable but you will need to keep an eye on those bands.
2) Go the self employed and class 2 route. Keep her pay less than the class 4 limit and no other NI to pay.

atush

And state pensions aren't enough. You need to pay yourself pension contribs thru your company (and save tax personally and in the company) plus she needs them as well. Not to mention filling ISAs too.

audioblackout

Thanks loads for everyone's help. I really mean it

OK so I think we're going to PAYE her. My final question (I hope!), I'm about to do my 11/12 accounts for 31st Jan, which I would like to change to reflect the fact she's now an employee.

I obviously need to let HRMC know and start using the PAYE software and fill in certain forms.

Can I backdate these to start at the beginning of the tax year I'm doing these accounts for (April 2011)? Or should I keep these 11/12 accounts the OLD way and start the PAYE from today onwards?

nomunnofun

Do not even consider amending your accounts for 2011/12 - she was not on the payroll and the returns for that tax year were required to be submitted by May 2012. Any amendment will increase the prospect of an enquiry exponentially.

I wouuld start from today - remember HMRC need to be notified of a starting date. You also have the issue of RTI from April which means that HMRC are notified of every payment at the time that it is made.

atush

Do be aware of the extra cost of NICs to you as her employer if you PAYE instead of her going self employed (which as an 'agency' she was)?