Can I transfer freelance earnings to my unemployed wife?

sheramber

If your wife was employing you, you would need to consider whether she  would have to register as an employer and pay employers Nic as well as deducting tax and NIC from your wages. 

Dead_keen

Chris66101 said:

... 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? 

If HMRC wanted to get pedantic about it, they would want to tax you on all the amounts paid for the work that you've done.  Tax legislation for the most part taxes the commercial reality and the reality here is that it is your money and so, HMRC would say, you should be taxed on it.  The question then is how they would do that? There is a lot of case law and legislation that gives them a chance of doing that and if they tried hard, I'd say that they would probably succeed.  For example:

1. Intermediaries legislation: The intermediaries legislation applies to an individual (your wife) in the same way as it does with a company or a partnership.  See my earlier post to James.

2. Substance over form: viewed realistically, it's really yours and so it should be taxed as yours.  To deal with that it's really important that the paper work reflects the enagagement with your wife (and not you) and that she really does have a trade.  Having a trade is a question of fact.  But if the purported "trade" looks like its just a thing on paper then she won't have a trade.  You can google the "redirection of earnings principle".  Although the facts are different to the RFC case that discussed that, they are not that different.

3. It's really your trade: It may be the case that HMRC would say it is really you that has the trade and the money is paid to your wife.  If HMRC can show you had the trade, then they have a number of choices.  The obvious one would be that your P&L account of your trade should include all the income.  Another choice for HMRC would be that Condition A to E of the self-employed disguised remuneration rules would apply and so you would be taxed on the money she receives.  

[Deleted User]

Chris66101 said:

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.

You are overthinking it - it really is not that much different. In essence, a partnership is two sole traders working together and allocating the profits as they see fit. All of the accounting information is entered on the partnership return and the share of profit (one entry with one figure only) is transferred to the individual returns in the partnership section. If there is no other income the individual returns are greatly simplified.

As has been said, you do need specialist software to submit the return or an accountant who will have access to that software. Alternatively, you do have the option of the paper return with the stricter filing time limit.

I wouldn’t dwell too much on ‘proving the partnership’. One thing though - make sure your wife knows that she is a partner! That may seem obvious but, from many years experience, it is important.

Jeremy535897

Dead_keen said:

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.

My understanding of the situation is that OP is a freelance photographer doing the odd bit of camera work for various people, rather than say being a cameraman for the BBC but claiming to be self employed, but I could be wrong. I think, however, that we are in agreement that if IR 35 applied to the partnership, OP would be categorised as an employee if he continues as a sole trader.

Pennywise

Chris66101 said:

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.

But that's a sham.  She's not the one doing the work is she?  So for it to be legitimate, she'd have to pay you the market rate do actually do the photography, liaise with clients, etc., so her "profit" would be back to being minimal for the limited work (if any) that she does herself.  If it was so easy and acceptable, then people wouldn't set up partnerships to achieve the end result you want - you can't have it both ways.  If you want to transfer profits from one person to another, you have to set up a legitimate "vehicle" for doing it, i.e. a partnership and accept the consequences of tax returns, p'ship bank account etc.

RG2015

A lot of people manipulate their tax affairs in order to pay less tax. If it is legal it is tax avoidance. If it breaks the rules it is tax evasion.

Some tax avoidance arrangements are contrived.

In this case I cannot see any justification for not paying income tax on your self employed income.

Edi81

This is all sounding very complex to save a couple of thousand pounds. 

Just pay the tax. 

Jeremy535897

Edi81 said:

This is all sounding very complex to save a couple of thousand pounds. 

Just pay the tax. 

An extra few entries on 2 extra tax returns might save £2,500 a year, depending on OP's tax rate. Two simple tax returns could be done in half an hour. People spend longer than that a month in supermarkets working out savings worth £10.