Can I transfer freelance earnings to my unemployed wife?

Chris66101

I am employed (28K pa) and also earn around 6K pa from freelance camerawork as a sole trader. My wife is unemployed and can't claim any benefits (therefore no income). In order to pay less tax on my freelance earnings, would it be legal for my wife to start up as a sole trader (as a 'camera agent',) and employ me per job, paying me a token rate (minimum wage). That way, the money I was previously earning (and paying tax on) would instead be paid directly to her. So at the end of the year, she would have 6K earnings, but therefore wouldn't pay any tax on it due to 6K still being under her tax allowance. That would form her only income. Yes, she'd lose a % of that in having to pay me minimum wage for each job. But overall, we'd be able save a lot on not pay the tax. Basically, it's shifting my freelance earnings over to her, and therefore not having to paying tax on it because 6K would be well under her personal tax allowance. Does anyone know if this is at all legal? Or maybe there are other implications? Many thanks all.

Jeremy535897

A better simpler option would be for you to bring your wife into your freelance business as a partner, and then you can decide how to share profits (say 1% you and 99% your wife) without worrying about PAYE, minimum wage etc. She would then become liable for the business debts with you, but if she took it over, she would be responsible for those anyway.

Chris66101

Thank you Jeremy, much appreciated advice. Interesting! Do I need to declare to HMRC how profits are shared? Is this done on my tax return? There are no business debts to worry about. If she was a partner, would she need to do her own tax return? 

Chris66101

Jeremy535897 said:

A better simpler option would be for you to bring your wife into your freelance business as a partner, and then you can decide how to share profits (say 1% you and 99% your wife) without worrying about PAYE, minimum wage etc. She would then become liable for the business debts with you, but if she took it over, she would be responsible for those anyway.

Thank you Jeremy, much appreciated advice. Interesting! Do I need to declare to HMRC how profits are shared? Is this done on my tax return? There are no business debts to worry about. If she was a partner, would she need to do her own tax return?

Chris66101

Also, if I split the profits 1% to me, and 99% to her, does there have to be any evidence of me actually paying 99% to her, or can the payments all sit in the same account? Thank you.

Dazed_and_C0nfused

A two person partnership needs to do 3 Self Assessment returns.

One for each partner (which you can do via gov.uk) and a partnership return (which you need commercial software for.  Or an accountant).

Your wife will also be eligible to pay voluntary Class 2 NIC which builds up years for State Pension purposes.  This will potentially save her a few hundred pounds a year (compared to voluntary Class 3 NIC) and could be very valuable when she reaches State Pension age.

If you haven't already done so it is with getting her to check her State Pension forecast.  Making you sure you/she reads it in detail, not just the headline figure.

Jeremy535897

Chris66101 said:

Also, if I split the profits 1% to me, and 99% to her, does there have to be any evidence of me actually paying 99% to her, or can the payments all sit in the same account? Thank you.

It would be best practice to have a business bank account in the name of the partnership. Each partner would be allocated their share of profits in the accounts, and would be free to draw upon those profits whenever they like (assuming money is available in the partnership bank account at the time).

Dead_keen

One thing with using a partnership is that there actually needs to be a partnership.  So you need to make sure that there is a real partnership rather than just saying there is one.  Just splitting your income 99%:1% is not enough to create a partnership.

Using a partnership may bring the intermediaries legislation (IR35) into play.  That could be an issue for your end users.

Jeremy535897

Dead_keen said:

One thing with using a partnership is that there actually needs to be a partnership.  So you need to make sure that there is a real partnership rather than just saying there is one.  Just splitting your income 99%:1% is not enough to create a partnership.

Using a partnership may bring the intermediaries legislation (IR35) into play.  That could be an issue for your end users.

If IR35 would apply to a partnership, presumably tax should already be deducted from the amounts paid to OP?

Chris66101

Gents, thanks so much for your suggestions and input. But with things like intermediaries legislation, 3 tax returns and proving the partnership, it's getting a little complicated for me to follow. Would it not be far easier for my wife to become a sole trader....she receives the income (instead of me)....she pays me a nominal rate for doing the actual work....then at the end of the tax year she (i.e., us) pays no tax on the 6K income because that is several K under her personal allowance? Are there any implications of this arrangements? Many thanks.

Dead_keen

Jeremy535897 said:

Dead_keen said:

One thing with using a partnership is that there actually needs to be a partnership.  So you need to make sure that there is a real partnership rather than just saying there is one.  Just splitting your income 99%:1% is not enough to create a partnership.

Using a partnership may bring the intermediaries legislation (IR35) into play.  That could be an issue for your end users.

If IR35 would apply to a partnership, presumably tax should already be deducted from the amounts paid to OP?

I was thinking more that some companies have a blanket ban on intermediaries because of the hassle for them.

But you are right, if the client decided that the OP was an employee then PAYE/NIC should have been deducted.  So presumably the client has decided that the OP is not an employee.  I have no idea if that is the case.

A partnership can be an intermediary (and the one discussed here would seem to be).  So PAYE/NIC would need to be withheld on all the amounts paid to the partnership if the client decides that there is a relevant engagement.  If the client decides that there is not one (which may be the case if the client doesn't think that the OP is currently an employee) then the payment can be made to the partnership gross.