Paying wife as sole trader

anamenottaken

Xtc wrote: »

Hi,

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.

Given that you say you make hardly any profit, why are you trading as it must be taking time you could be spending with your family and that seems like a penalty to you in relation to your work overtime?

Is it a hobby?

simonfitba

patanne wrote: »

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?

I read the SAH partner does get pension years. Until the child is 12.

Savvy_Sue

There was a while back a similar discussion, where someone wanted to pay their son for a whole year at once. I didn't think you could do that without triggering a massive NI bill, because I didn't think you could calculate NI due for an annual payment. However I was wrong, and someone quoted chapter and verse about how to do it.

So I agree, this is one for the accountant to sort out.

jimmo

Contrary to popular myth it is perfectly feasible for you to decide to pay your wife for the work she has done for your business and, to be blunt, it is probably something you should have considered doing long before now.
However, suddenly changing things vastly increases the likelihood that HMRC will come sniffing.
From HMRC’s point of view we seem to have a part time business that has been ticking over for six years more or less breaking even but then, out of the blue, comes a loss relief claim not only reducing the proprietor’s higher rate tax liability but also magically wiping out the Child Benefit recovery.
That is more than justification for opening an Enquiry so you need to be prepared for that.
In my days at HMRC I would have taken you on, but not for the reasons the majority of posters here have suggested.
1) Are your wife’s wages commensurate with the work she has done? On here you have said that she works between 3 and 10 hours per week so paying her £100 per week represents an hourly rate between £10 and £33 per hour. Is that reasonable or could you have engaged someone else for a lot less?
http://www.hmrc.gov.uk/manuals/bimmanual/BIM37715.htm
2) Is your self-employed business operated on a commercial basis with a view to realising a profit?
Having run your business for 6 years more or less breaking even you are not exactly setting the commercial world on fire so it really does beg the question of whether this is a commercial business or a hobby. Any claim for loss relief could be denied.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM85705.htm

antrobus

jimmo wrote: »

.....
2) Is your self-employed business operated on a commercial basis with a view to realising a profit?
Having run your business for 6 years more or less breaking even you are not exactly setting the commercial world on fire so it really does beg the question of whether this is a commercial business or a hobby. Any claim for loss relief could be denied.....

A valid point. OP's business currently appears to be at break even so HMRC likely don't care much. Start banging in wife's wages and making loss relief claims, and HMRC may well start to care.

chrismac1

In theory the last two posts are entirely correct, and in practice 10 or 15 years ago I am pretty sure you would have stood at least a 20% or 30% enquiry risk. However HMRC 2014 is shambolic compared to HMRC 2000.

I have roughly 5 clients who've been in similar circumstances in various ways and where I have "not a hobby business" notes for the defence in place. On average I have had these clients for 3 years. Number of enquiries = zero.

Xtc

jimmo wrote: »

Contrary to popular myth it is perfectly feasible for you to decide to pay your wife for the work she has done for your business and, to be blunt, it is probably something you should have considered doing long before now.
However, suddenly changing things vastly increases the likelihood that HMRC will come sniffing.
From HMRC’s point of view we seem to have a part time business that has been ticking over for six years more or less breaking even but then, out of the blue, comes a loss relief claim not only reducing the proprietor’s higher rate tax liability but also magically wiping out the Child Benefit recovery.
That is more than justification for opening an Enquiry so you need to be prepared for that.
In my days at HMRC I would have taken you on, but not for the reasons the majority of posters here have suggested.
1) Are your wife’s wages commensurate with the work she has done? On here you have said that she works between 3 and 10 hours per week so paying her £100 per week represents an hourly rate between £10 and £33 per hour. Is that reasonable or could you have engaged someone else for a lot less?
link
2) Is your self-employed business operated on a commercial basis with a view to realising a profit?
Having run your business for 6 years more or less breaking even you are not exactly setting the commercial world on fire so it really does beg the question of whether this is a commercial business or a hobby. Any claim for loss relief could be denied.
link which I had to remove due to new user no link rule

Thanks for all the great feedback to my question...I had the checkbox ticked to let me know of any replies but it only told me once so I was surprised to find so many posts on the topic this morning!

I have never been in a financial position to be able to afford to pay my wife for her work in the past, the overtime money made it possible. I do work for one of my relatives for nothing on the assumption that if he ever makes it big he will pay me my dues. I would have hoped it worked the same way.

The business is something that ticks over while I work my full time job. I have periods where I work on it and periods where it can sit unattended for months on end. It is web based and so makes money without me having to do anything at all other than my wife's maintenance. It doesn't make a fortune and like I said it breaks even each year. The link at the bottom of the post above is the one the probably puts me off doing it the most as I would be concerned that someone thinks I just do it to get a tax break. For years, I paid NIS type 4 (or 2 I can't remember) payments when it turned out I didn't need to (low earnings). HMRC gave me a partial refund but not the whole amount. It was the last thing on my mind when I set it up and I only thought of the tax thing this year due to overtime.

Anyway thanks again for all the opinions, appreciate you guys taking the time :beer: