Paying my Wife to reduce tax liability?

Hoblands

Hi

I run a small property maintenance business employing 3 full time staff on PAYE. My wife has her own domestic cleaning business (on her own) and works for around 12 clients on a self employed basis. She also carries out 8-10 hours a week helping with my book keeping / invoicing and answering the phone etc. On advice from my accountant I have been paying her £10000 per year (on a self employed basis) which I think is reasonable for the hours worked. She earns approx £14000 from her own clients and declares a total of £24000 on self assessment (before offsetting expenditure). Now, my question - this last tax year I have earned just over £70000 (I also use self assessment but through an accountant). Would it be plausible / legal / moral to give my wife a pay rise to absorb the amount that takes me in to the higher tax rate bringing us both down to the 20% rate or would this be very frowned upon as effectively she'll be earning £35000 annually from me for just 8-10 hours work per week? It would be nice to save some money in income tax but I don't want to end up on the wrong side of HMRC!

Many thanks in advance..

Paul

TheCyclingProgrammer

Are you also self employed?

Hoblands

Hi, yes I am

Cook_County

Your wife is however almost certainly an employed worker and you appear to have failed to operate PAYE.


Had you thought instead of a partnership or of the business incorporating?

TheCyclingProgrammer

I would say it's worth an appointment with an accountant to see if incorporating might be a good move for your business, as well as the possibility of making you and your wife joint shareholders.

As things stand your options are limited and I think you're already on the limit for what you can reasonably pay your wife for the work she does.

I also agree that you should consider whether your wife really should have been on the payroll for the work she's done.

Hoblands

Many thanks for the replies. I will take some advice and look in to this further.

It's my understanding that employing someone on a self employed basis is within the rules provided they are legitimately self employed and work for multiple clients (which my wife does). I'm willing to stand corrected on this though and as I already have several people on the payroll it wouldn't be too much of a drama to make some changes, albeit costing a little more in employers NI...

Wayne_O_Mac

Hoblands wrote: »

It's my understanding that employing someone on a self employed basis is within the rules provided they are legitimately self employed and work for multiple clients (which my wife does).

The other clients don't matter, it's the nature of her work for you and terms of engagement that will determine her status.