Bed & Beakfast business, tax return & personal allowances

methamon

My wife & are I considering running a “small” Bed & Breakfast business from our home. There will be no formal Ltd Co. Gross income is expected to be approximately £30k p.a. Regarding taxation of this venture I have read the gov.uk advice “Simplified expenses if you're self-employed - Living at your business premises” and understand how to calculate the simplified expense element. The other side of the equation is the business income and presumably the difference is the taxable element prior to any tax free allowance. Historically my wife has worked PAYE and never had to submit a tax return. Historically I have been a higher earner and for the last 20 years submitted tax returns. My question relates to the personal tax free allowance(s). Clearly we are both entitled to £12.57k tax free allowance so to use both allowances is it necessary to split the business income / simplified expense element / taxable element and each submit a tax return? Is there any way to submit one tax return and claim both tax free allowances?

Jeremy535897

The simplest way you can divide the trading income from a bed and breakfast business is for you and your wife to be in partnership, dividing profits as you see fit. That requires three tax returns: one for each of you and one for the partnership. It is the most natural form of the business if you both own the property. Alternatives like one of you employing the other beg the question as to why only one of you would be running the business and then employing the other if you both owned the property, plus it involves payroll, minimum wage issues and commercially justifying the amount paid.