Can I Hire My Wife?

BlackSheep19

Hi All, 
Me and my wife had our first child in Oct 2019. We decided we can just about make things work on one salary and think its best for my wife to have a few years off work to look after our child. When lockdown happened I realised we could do with a few extra pennies a month so started a music consultancy business to work with musicians and help with production & promotion etc. Its going very well and I will need to start declaring tax in the next financial year. 

However, because I also have a full time job I will be taxed 20% on all profits. My wife doesn't work and has her £12,500 tax allowance untouched. My question is, could my wife register as a self employed administrator and invoice me for whatever profit I have made each month? Then we file our tax returns, I have made no profit and my wife declares all the profit she has made?

Thanks everybody!

p00hsticks

What will your wife actually be contributing to the enterprise ? My understanding is that you have to be able to demostrate that she's actually earned that money. So you could pay her a salary for e.g. doing the business admin, but HMRC will expect that salary to be proprtionate to what she actually puts in to the success of the business.

As an aside - it sounds like you are a basic rate tax payer - in which case you could ask your wife to apply for marriage allowance to transfer 10% of her allowance to you while she is not earning

https://www.gov.uk/marriage-allowance

[Deleted User]

BlackSheep19 said:

Hi All, 
Me and my wife had our first child in Oct 2019. We decided we can just about make things work on one salary and think its best for my wife to have a few years off work to look after our child. When lockdown happened I realised we could do with a few extra pennies a month so started a music consultancy business to work with musicians and help with production & promotion etc. Its going very well and I will need to start declaring tax in the next financial year. 

However, because I also have a full time job I will be taxed 20% on all profits. My wife doesn't work and has her £12,500 tax allowance untouched. My question is, could my wife register as a self employed administrator and invoice me for whatever profit I have made each month? Then we file our tax returns, I have made no profit and my wife declares all the profit she has made?

Thanks everybody!

Currently you are a sole trader in your music consultancy business? One option would be to form a partnership with your wife and allocate profits as you see fit. While requiring to register the partnership and complete a separate partnership return, it is perfectly reasonable to do so and good tax planning. 

BlackSheep19

p00hsticks said:

What will your wife actually be contributing to the enterprise ? My understanding is that you have to be able to demostrate that she's actually earned that money. So you could pay her a salary for e.g. doing the business admin, but HMRC will expect that salary to be proprtionate to what she actually puts in to the success of the business.

As an aside - it sounds like you are a basic rate tax payer - in which case you could ask your wife to apply for marriage allowance to transfer 10% of her allowance to you while she is not earning

Hi PS, 
Thanks for your reply. In all honesty she does very little, she has sourced me one client and thats about it. I just thought it may be a legal way to avoid tax. So can HMRC ask for proof of work and actually say the amount paid for the service provided is unreasonable? Cheers! 

BlackSheep19

[Deleted User] said:

BlackSheep19 said:

Hi All, 
Me and my wife had our first child in Oct 2019. We decided we can just about make things work on one salary and think its best for my wife to have a few years off work to look after our child. When lockdown happened I realised we could do with a few extra pennies a month so started a music consultancy business to work with musicians and help with production & promotion etc. Its going very well and I will need to start declaring tax in the next financial year. 

However, because I also have a full time job I will be taxed 20% on all profits. My wife doesn't work and has her £12,500 tax allowance untouched. My question is, could my wife register as a self employed administrator and invoice me for whatever profit I have made each month? Then we file our tax returns, I have made no profit and my wife declares all the profit she has made?

Thanks everybody!

Currently you are a sole trader in your music consultancy business? One option would be to form a partnership with your wife and allocate profits as you see fit. While requiring to register the partnership and complete a separate partnership return, it is perfectly reasonable to do so and good tax planning. 

Hi Purdy,
My plan was to register with HMRC as a sole trader for next financial year as I earned less than £1000 this year from the consultancy. However I have a few more contracts starting in April and will be earning more than £1000 in the next year so will need to register. So if I form a partnership with my wife can I split the profits so she gets all of it? Thanks! 

[Deleted User]

BlackSheep19 said:

Ip00hsticks said:

What will your wife actually be contributing to the enterprise ? My understanding is that you have to be able to demostrate that she's actually earned that money. So you could pay her a salary for e.g. doing the business admin, but HMRC will expect that salary to be proprtionate to what she actually puts in to the success of the business.

As an aside - it sounds like you are a basic rate tax payer - in which case you could ask your wife to apply for marriage allowance to transfer 10% of her allowance to you while she is not earning

Hi PS, 
Thanks for your reply. In all honesty she does very little, she has sourced me one client and thats about it. I just thought it may be a legal way to avoid tax. So can HMRC ask for proof of work and actually say the amount paid for the service provided is unreasonable? Cheers! 

Yes they can! The partnership option does not involve such level of scrutiny though (so long as your wife is aware of her status in the business)

Pennywise

[Deleted User] said:

BlackSheep19 said:

Ip00hsticks said:

What will your wife actually be contributing to the enterprise ? My understanding is that you have to be able to demostrate that she's actually earned that money. So you could pay her a salary for e.g. doing the business admin, but HMRC will expect that salary to be proprtionate to what she actually puts in to the success of the business.

As an aside - it sounds like you are a basic rate tax payer - in which case you could ask your wife to apply for marriage allowance to transfer 10% of her allowance to you while she is not earning

Hi PS, 
Thanks for your reply. In all honesty she does very little, she has sourced me one client and thats about it. I just thought it may be a legal way to avoid tax. So can HMRC ask for proof of work and actually say the amount paid for the service provided is unreasonable? Cheers! 

Yes they can! The partnership option does not involve such level of scrutiny though (so long as your wife is aware of her status in the business)

One word of caution - you have to be legally married to avoid the tax rules preventing transfer of profits between spouses in a partnership.  If you're not legally married, or civilly partnered, you face more risk and scrutiny because there are specific tax exemptions between legally married spouses that don't apply to common law marriage situations.

[Deleted User]

Pennywise said:

[Deleted User] said:

BlackSheep19 said:

Ip00hsticks said:

What will your wife actually be contributing to the enterprise ? My understanding is that you have to be able to demostrate that she's actually earned that money. So you could pay her a salary for e.g. doing the business admin, but HMRC will expect that salary to be proprtionate to what she actually puts in to the success of the business.

As an aside - it sounds like you are a basic rate tax payer - in which case you could ask your wife to apply for marriage allowance to transfer 10% of her allowance to you while she is not earning

Hi PS, 
Thanks for your reply. In all honesty she does very little, she has sourced me one client and thats about it. I just thought it may be a legal way to avoid tax. So can HMRC ask for proof of work and actually say the amount paid for the service provided is unreasonable? Cheers! 

Yes they can! The partnership option does not involve such level of scrutiny though (so long as your wife is aware of her status in the business)

One word of caution - you have to be legally married to avoid the tax rules preventing transfer of profits between spouses in a partnership.  If you're not legally married, or civilly partnered, you face more risk and scrutiny because there are specific tax exemptions between legally married spouses that don't apply to common law marriage situations.

Definitely a great point worth bearing in mind. The op did state that he was married though.

Dead_keen

Pennywise said:

One word of caution - you have to be legally married to avoid the tax rules preventing transfer of profits between spouses in a partnership. 

Out of interest, what are these when there is a trading partnership?