Employing a family member

garth549

Hopefully a simple (and not a dodgy) question!

Are there any issues (legally) 'employing' my wife (who's now a stay-at-home mum) in the family business to take advantage of her tax-free allowance?

Would she actually have to do something? (eg a bit of paperwork now and again)

BoGoF

It's very dodgy 'paying' her to do nothing to reduce your tax bill.

Comms69

garth549 wrote: »

Hopefully a simple (and not a dodgy) question!

Are there any issues (legally) 'employing' my wife (who's now a stay-at-home mum) in the family business to take advantage of her tax-free allowance?

Would she actually have to do something? (eg a bit of paperwork now and again)

Well the reality is that you can employ anyone to do anything basically.


Some people are paid to answer phones, some paid to do social media, etc. So yes you can.

BoGoF

Comms69 wrote: »

Well the reality is that you can employ anyone to do anything basically.


Some people are paid to answer phones, some paid to do social media, etc. So yes you can.

Whilst that may be true I think OP is asking more from a tax angle and HMRC would have issues if the wife was getting paid more than the going hourly rate to do 'a bit paperwork'.

garth549

Yes it would basically be to reduce our tax liability, rather than increasing my salary paying 40% tax.

Is the 'going rate' really relevant to HMRC? If a company wanted to pay someone £100 an hour to answer the phone, why can't they?

I know someone who is paid just to be on-call in the evenings. Some months he doesn't do anything whatsoever. What's to stop my wife being 'on-call' for us? (we do actually provide 24 hour support but it's extremely rare for us to get anything outside of office hours)

Purely asking from a legal perspective and if HMRC really would take issue with this. I completely understand that this will attract criticism.

ACG

You can pay people to do nothing legally. But in this case the reason behind it is where it becomes an issue. I doubt anyone would really be interested as I am guessing thousands of people do it. 
That being said, you are married, so you transfer some of your income tax allowance over to her cant you? I am not really sure how it works though. 

SensibleSarah

I've worked in two companies where the MDs paid their respective wives a significant salary to do nothing. I worked at the first place for nearly 6 years and never once met her - she was apparently our accountant. Funny that we had a separate accounts team in-house as well though who had never met her either

Potbellypig

Legally no problem with it at all. Just be careful to check out the new pension rules around employees though. Is it a Ltd company and if so then you can add her as a shareholder and give her the £2k tax free dividend too. 

Undervalued

Potbellypig said:

Legally no problem with it at all. Just be careful to check out the new pension rules around employees though. Is it a Ltd company and if so then you can add her as a shareholder and give her the £2k tax free dividend too. 

Well, legally there is a problem unless she actually does some work that is consistent with what she is being paid! 

Yes, we all know it happens and that it is not the easiest thing for HMRC to spot. However people do sometimes get caught for playing the system like this. Sometimes shopped by a disgruntled genuine employee!

Savvy_Sue

There might be better ways of doing this, so have you talked to your accountant? If you don't have one, it might be well worth getting one!

Smodlet

There is a legal way of transferring your wife's tax allowance to yours as I understand it if she is a non-tax payer:  The link is here:  https://www.moneysavingexpert.com/family/marriage-tax-allowance/ 

As for paying her way over the odds for doing nothing at all... It may be unlikely you would ever be caught but a disgruntled employee, ex-employee or, indeed, anyone who found out could notify HMRC; really, why should they not?