Spreading income between me and wife

Pianoman1

My wife and I are both self employed private teachers. My wife hasn't picked up as much business since our relocation and will have earned less than the personal allowance. Is it possible for me to (legally) offset some of the income i earned through my clients to and declare on my wife's income self assessment so that i have less taxable pay?

Darksparkle

No, your income is your income.

chrismac1

There are 2 options to achieve this - a partnership or a limited company where you both have voting shares. If you are going to backdate this, your only option is the partnership. It means registering the partnership for self-assessment.

The one difficulty you may have is with invoices you may have already raised. It's just possible if you had an enquiry - 3% chance of this - that HMRC might argue no partnership existed. I've not heard of any such cases recently, maybe other posters could post up such cases if they have.

Long term the limited company option could well save you tax BUT if the combined sales are over £82k you'll need to register for VAT. And if your customers are non-VAT registered then this is not attractive for you, as you'd be charging them an extra 20% or taking the hit on profit.

See my other reply earlier today to another teacher on this issue.

MacMickster

There is also the option of your wife transferring 10% of her personal allowance to you for this tax year.

Edit - but of course if we are talking about the last tax year and you are completing your self assessment returns then this is not an option, but backdating the formation of a partnership to a previous tax year would also be stretching a point.

Dead_keen

chrismac1 wrote: »

If you are going to backdate this, your only option is the partnership.

You cannot backdate a partnership. There either was one or there was not one. Pretending that there was one when there was not would be a very silly thing to do.

Going forward, a partnership would seem to achieve what you want it to. A limited liability partnership would seem to work too but requires more admin. There can also be extra tax issues.

The VAT issues that chrismac1 mentions for a limited company would be the same as with a partnership.

chrismac1

http://www.accountingweb.co.uk/anyanswers/question/backdating-partnership-registration-1415

This link may help. Clearly accountants are split on whether they are OK to backdate a partnership or not.

I am not split. Where a partnership makes sense, and no clear evidence of the lack of its existence exists, I've done it several times over the past 6 years. No enquiries, no problems and in my view I could defend any enquiry robustly.

There is a clear distinction here with a limited company, which legally exists on the date of its incorporation. It either exists or it does not exist, hence no backdating from me in this situation. But an informal partnership is completely different, so no worries.

Dead_keen

chrismac1 wrote: »

Clearly accountants are split on whether they are OK to backdate a partnership or not.

No they are not.

Whether a partnership exists is a question of fact. It can be a very informal relationship or it can be documented by a 40+ page agreement. But there needs to be evidence of some kind. The two people in the original post appear to have been separately self-employed and presumably doing tax returns on that basis. Now, around 21 months after the start of the tax year, it 'makes sense' for tax reasons that there was a partnership that started 21 months ago? Well that stinks.

Perhaps the several times you have done it in the past six years have been different. I don't know. There might, for example, have been contemporaneous that they were carrying on a business together and sharing the profits. If so, that's very different.

And the absence of an enquiry doesn't mean anything at all as this is self-assessment. And who cares if it can be defended robustly? Everyone defends enquiries robustly. And many people who do so fail convince HMRC or the tribunals. If this type of situation got passed to a partnership specialist at HMRC, they wouldn't even bother to reach up for Lindley & Banks.

chrismac1

Give me one case in the last 10 years when HMRC took on a partnership like this on the basis that no partnership existed, and won. Just one.

agrinnall

chrismac1 wrote: »

I am not split. Where a partnership makes sense, and no clear evidence of the lack of its existence exists, I've done it several times over the past 6 years. No enquiries, no problems and in my view I could defend any enquiry robustly.

So you're happy to lie and say that a partnership did exist when you know that is a fiction? I know you have a (in my view somewhat irrational) hatred of HMRC but I am somewhat surprised that you would go that far and it seems to me that doing so would be aiding and abetting tax evasion.

Darksparkle

chrismac1 wrote: »

Give me one case in the last 10 years when HMRC took on a partnership like this on the basis that no partnership existed, and won. Just one.

How would someone on here know every single enquiry HMRC have worked in the last 10 years.

Dead_keen

chrismac1 wrote: »

Give me one case in the last 10 years when HMRC took on a partnership like this on the basis that no partnership existed, and won. Just one.

That's a pretty weak response. I would not expect that anyone would be advised to take such a case as the case law is very clear on this. For example, the Williamson case says that just asserting that a partnership exists is not conclusive if there is no supporting evidence.

But HMRC do still take the point on whether a partnership exists. From memory, the Phillips case was the other way around in that HMRC took the case to show that there was a partnership. And they won. And I think that was within the last ten years.