Using a family member to help reduce tax bill.

evosy1978

Hi 
I'm a self employed sole trader.  I have some work which a family member who lives with me  can do and I can pay them a weekly wage.  

Can this wage be taken away from how much I earn?

I will go pass the higher tax threshold this year. But if I give this work to them and pay them then I will be under the threshold.  

How do I go about doing this? Can I still stay as sole trader or do I need to set something else up? 

Thanks

sheramber

How much will you be paying them?

Do they have any other income?

pramsay13

Yes you can do it. Politicians do it all the time.

You can decide if you want to become their employer or if they will also be self employed and sort their own tax etc. 

If the work is there to be done then it makes sense. If, however, you are trying to find a way to reduce your income you are better increasing your pension contributions. 

BikingBud

pramsay13 said:

Yes you can do it. Politicians do it all the time.

You can decide if you want to become their employer or if they will also be self employed and sort their own tax etc. 

If the work is there to be done then it makes sense. If, however, you are trying to find a way to reduce your income you are better increasing your pension contributions. 

What's good for the goose as they say.

purdyoaten2

pramsay13 said:

Yes you can do it. Politicians do it all the time.

You can decide if you want to become their employer or if they will also be self employed and sort their own tax etc. 

If the work is there to be done then it makes sense. If, however, you are trying to find a way to reduce your income you are better increasing your pension contributions. 

Not great advice I am afraid - the ‘employer’ doesn’t get to decide if those working for him or her are self-employed. 

A family member only working for one person-  another family member - may have some difficulty in proving their self-employed status in the eyes of HMRC.

https://www.gov.uk/employment-status/selfemployed-contractor

sheramber

Depending on the family members other income and how much you are paying them you may need to register for PAYE  as an employer, pay employer's NIC and deduct tax and NIC from the family member.

purdyoaten2

Of course, the upshot is that the op will be worse off - another example of the tax tail wagging the dog!

e.g. by paying the family member £6000 he will be £6000 down. The maximum tax and NI saving would be £2520 at 42%) leaving the op £3480 worse off. 

Jeremy535897

If this person would be your sole employee, and you paid them no more than £123 a week, in any week, and they are not a taxpayer, you would not have to set up a PAYE scheme, but would still need to keep records:
https://www.gov.uk/paye-for-employers

This however means that the earnings of the employee do not count towards their years for pension entitlement.
You should also note that, in most cases, you need to pay at least the minimum wage (there is an exemption for family members living in the same premises as you).

NannaH

You could pay them just over the LEL to keep them getting NI credits if they need them but you would have to register as an employer AND run Payroll,  no NI or tax would be due from either party. 

Paying them under the LeL requires no registration on your part unless they have other earnings OR pension income. 

You have to pay them to their own bank account for proper record keeping.

It’s a no brainer if you are already paying them as you can claim it as expenses and bring your turnover down to avoid 40% tax 😉

It’s what my husband does with me, I do his books -   he’s a sole trader,  earns under the £85k limit so only the Self assessment Short form needs using.
At the moment he’s not registered as an employer but come April I will be getting a pay rise  🤣 so he will then register.  

NannaH

Out of curiosity,  do you use accounting software?
If so you just put down their wages as a ‘Net salary expense’.

purdyoaten2

NannaH said:

You could pay them just over the LEL to keep them getting NI credits if they need them but you would have to register as an employer AND run Payroll,  no NI or tax would be due from either party. 

Paying them under the LeL requires no registration on your part unless they have other earnings OR pension income. 

You have to pay them to their own bank account for proper record keeping.

It’s a no brainer if you are already paying them as you can claim it as expenses and bring your turnover down to avoid 40% tax 😉

It’s what my husband does with me, I do his books -   he’s a sole trader,  earns under the £85k limit so only the Self assessment Short form needs using.
At the moment he’s not registered as an employer but come April I will be getting a pay rise  🤣 so he will then register.  

Yes - that is all well and good as the ‘household income’ benefits overall. 

Depends what the op means by ‘family member’.