Paying wife as sole trader

Xtc

Hi,

I work full time and my wife is a full time mum. My salary is around 40k.

6 months ago I got the opportunity to work 5 months worth of overtime and so my gross salary will have exceeded £60k

This means I (we) will have to forfeit our entire child benefit for the year due to the governments ridiculous rule where a couple both earning 49k get to keep theirs but if one person earns over 60k the couple get nothing.

I have worked 70+ hour weeks for the last 6 months to get to this point meaning a lot of time lost with my child and it feels unfair we are penalised for this further.

Anyway, I have a sole trader business which I have run since 2008. It pretty much breaks even each year as I earn enough from it to pay the costs of it. My wife often helps out with administering the business and spends between 3 and 10 hours a week max on it for which I have never paid her a salary.

What I'm wondering is .... Can I pay her a small salary retrospectively for the hours she has done for the business so that my business then makes a loss and is then offset against my salary? I would pay her the money from my business account and she would likely just put the money into her own savings

I've read if you pay less than £108 a week then you don't need to register as an employer nor do you have to pay NI or pension.

52 * 108 would be about £5k which would allow us to be able to retain some child benefit money.

Would HMRC be suspicious of the typical break even suddenly becoming a £5k loss? I have no evidence of work my wife has done as it is simply administration work and until now I've not been considered paying her since we are married and share same money. I'd start doing it to reduce my tax however as it seems we are both being punished for working so hard.

Compared to the news that Chris Moyles kidded on he was dealing with second hand cars and list a million, this seems fairly innocent. I just don't want to get in trouble for what I would think was a legal move if it turns out it isn't

Any advice welcome

nonnatus

Compared to what Chris Moyles was doing... you're pretty much wanting to do the same! Which is to twist the figures around to ensure you get to keep your Child Benefit. Which is against the rules.


It doesn't matter how unfair the rules are, or how many other people / celebrities are bending the rules. It's up to you how much you WANT that extra money. And I do mean WANT, because on a salary of £60k you can't NEED the Child benefit...

Xtc

nonnatus wrote: »

Compared to what Chris Moyles was doing... you're pretty much wanting to do the same! Which is to twist the figures around to ensure you get to keep your Child Benefit. Which is against the rules.

I'm not making up that I have a business or fabricating work like Moyles did! I've just never had to worry about my sole trader business and whether it is is making a profit or loss. Companies use legal ways of reducing tax all the time,e.g. Making their spouse a director etc. and that is when they are not even doing anything for the business. Tax avoidance vs tax evasion and so on.

nonnatus wrote: »

It doesn't matter how unfair the rules are, or how many other people / celebrities are bending the rules. It's up to you how much you WANT that extra money. And I do mean WANT, because on a salary of £60k you can't NEED the Child benefit...

My salary isn't £60k though, I've worked 2 weeks worth of time every week for the last 6 months to get that much. We are a single income family and so when I got the opportunity to do the overtime I jumped at it. If I got £60k for doing a regular 9-5 job I'd be happy to give up child benefit

antrobus

Xtc wrote: »

.....Anyway, I have a sole trader business which I have run since 2008. It pretty much breaks even each year as I earn enough from it to pay the costs of it. My wife often helps out with administering the business and spends between 3 and 10 hours a week max on it for which I have never paid her a salary.

What I'm wondering is .... Can I pay her a small salary retrospectively for the hours she has done for the business so that my business then makes a loss and is then offset against my salary? .......

Your business can pay your wife a salary for the work she carries out. If your business makes a loss, you can claim relief against your PAYE income. What you cannot do is pay your way your wife retrospectively and change any past assessments. (Least ways, I don't think you can.)

Xtc

antrobus wrote: »

Your business can pay your wife a salary for the work she carries out. If your business makes a loss, you can claim relief against your PAYE income. What you cannot do is pay your way your wife retrospectively and change any past assessments. (Least ways, I don't think you can.)

So with it being February and the self assessment where I will state my PAYE as 60k will be April 2013 to April 2014, can I still pay for her work this financial year?

People often work for free early in a project on the premise they will get paid once it is affordable to do so. With me getting the additional money from the overtime, that has given me the money that I could use to retrospectively pay my wife for her part in the business this year. Since she doesn't use her tax allowance at all, she wouldn't need to declare anything

I will need to wait and see my total gross amount on my salary so i know if doing this will even make a difference. Just want to have some options available.

antrobus

Xtc wrote: »

So with it being February and the self assessment where I will state my PAYE as 60k will be April 2013 to April 2014, can I still pay for her work this financial year? ...

Yes. But you still might have to comply with the new(ish) PAYE real time regulations, and provide HMRC with the info 'on or before' the date of payment.

If you have an accountant, it's the sort of thing they can sort out.

Transformers

Start saving that child benefit payment - you'll need a lump sum when you get billed a penalty for cooking the books!

le_loup

You make a loss and offset it against other income and start to pay a connected party.


Don't be surprised if that rings some bells.

rach_k

If your wife is earning anything, she will need to declare the income even if it's within her tax allowance. She could register as self-employed and invoice you for the work done. I don't think there is a limit to how long after the work you can invoice... although I suppose it might look suspicious if it's a long time after.

Speak to an accountant! Lots of people set up a company and pay themselves and/or their partner a salary to help cut the tax. People may not like it but it's perfectly legal as long as you do it properly.

For the future, why not pay your wife for the work she does as a matter of course? Even if it all goes into the same pot, you can make use of her tax allowance and if she ever plans to go back to work it is something for her CV at least. I would imagine that "did admin for my husband's company" doesn't read quite as well as "did admin for a small company on a freelance basis" even if you know they're the same thing.

chrismac1

There's some daft stuff in this thread so far, mixed in with some decent stuff. For the 2013-14 year, you have two main options both still available to you but you need to act quickly.

1. Make a pension contribution. It is your adjusted net income which counts, so an £8k pension payment to a qualifying scheme counts as £10k grossed up and takes your adjusted net income from £60k to £50k. You have until 5 April to do this.

2. Pay your wife a salary below the Lower Earnings Limit. £5,668 for the year. Strictly you should have been doing this all along, as strictly you have to operate a payroll system for monthly earnings above this level so strictly you can pay £472 for Feb and March without this. Anything you pay should strictly be paid irrevocably into a bank account she has full control over.

Note on the meaning of "strictly" - this is the series of rules, not necessarily laws, HMRC come up with. Thanks to them and Real Time Information, UK PAYE an NI is currently in meltdown and can be expected to remain in that state for the next few years. So the chances of you being pulled up for backdating the 5,668 are slim to zero. Get ready for much wailing and gnashing of teeth from the HMRC stooges on this site when they respond to this!

The bank account thing is a pretty clear-cut example of their silly rules. I have several husband and wife clients who operate only joint accounts. How someone is supposed to pay money irrevocably into a wife's bank account where none exists I leave to the HMRC stooges to answer for you.

patanne

I am sure this is going to turn out to be a silly question but - if the working partner earns too much to get child benefit and decides to not take that CB rather than having it taxed back, does the SAH partner still get credited with years towards their state pension or is that too cancelled?