Self-employed and married - lower income tax?

jay7_2

Here's my situation:
I am employed and self-employed at the same time. I earn £38k in my permanent employment and I expect around £19k profit from my self-employment this year. I do most of the work myself but my wife helps me mainly with administration from time to time (she's not paid for it). She has been temporarily employed from September and is on £19k pa. There is a good chance she'll become a permanent employee by the end of the year. She was on a maternity leave before with no income (other than statutory maternity benefits and child allowance). I do not use an accountant, I do the bookkeeping and submit self assesment forms myself.

My questions are:
What can we do to lower the income tax I pay? Can my wife register as self employed as well and invoice me for the work she does for me? Are there any other (better) options?

Thanks.

Murdina

You could employ your wife in your self employed business or you could make her a partner - you would need to do some calculations and have some idea of future profits to see what would be better. She must genuinely be doing something for the business if she is an employee - as a partner she should also genuinely be assuming the risks of a partner so you might want to have a proper legal agreement drawn up so you both understand the full implications. You'd then both have to do SA returns, as well as one for the partnership. If she is earning the amounts you suggest, then probably the most you are going to do is reallocate any profits on which you pay 40% to her to pay tax on at basic rate. Do be careful though - whatever you do must have commercial substance and not just be manipulation to minimise tax. It may be as well to consult an accountant or tax adviser, because there are some issues here (still) following a tax case normally referred to as Arctic Systems. But done right you should achieve some tax savings.
As an aside, have you checked your national insurance situation at all? On the figures you give, it is quite possible you are paying too much. Have a look at http://www.hmrc.gov.uk/nic/refund-nic.htm
Hope that gives you some ideas.

jay7_2

Thanks Murdina.
Looks like a lot of hassle.

itsnever2lateisit?

Artic Systems won their case:j

However the Chancellor in the Pre Budget Report announced measures to close the loophole. So in future it will be a requirement for YOU the business to demonstate to the Inland Revenue that what you are doing is not tax avoidance:mad: