Fair wage for wife's help with business

john3:16

My wife is helping me with collecting and logging all financial info with my Ltd Company. She works elsewhere and unlike me she does not pay 40% tax.

My question is therefore how much would be deemed a "fair" wage to give her in terms of the Inland Revenue's eyes? There is obviously a tax advantage for me (to a point!) and I want to maximise this without causing problems from any audit or query later.

I understand she would then have to declare this for tax purposes on her own Self-assessment form.

Thanks
Gerry

fengirl_2

You would have to justify the amount paid to her if the comany's accounts are ever investigated. To be on the safe side, you would need to record the number of hours worked each week/month and apply the average wage to those hours. Don't forget that you would have to operate PAYE on anything you pay her. Failure to do so would be more likely to bring your affairs to the attention of HMRC.

jaype

fengirl wrote: »

Y Don't forget that you would have to operate PAYE on anything you pay her. Failure to do so would be more likely to bring your affairs to the attention of HMRC.

Or she could declare herself self employed (as in self employed as her second job) and file a return herself for her second job. She'd have to pay Class 2 and 4 NICS. Might be cheaper than PAYE? But she'd have to invoice you for an hourly or daily rate for the work done each month.

Murdina

If you pay your wife a salary as an employee and this is her second job, there may be no need for self -assessment but you would need to have a PAYE scheme in place if you do not already and she should complete form P46 to get the "correct" code, which would be BR.

You would need to treat her as you would any "arms' length" employee i.e. pay her no more than is commensurate with her duties but of course at least the minimum wage.

I would not recommend jaype's suggestion if the work she is doing is under your control, only to be done by her (i.e. she cannot send her best friend along if she feels like having the time off) and she has no similar work elsewhere which is also on a self-employed basis. Paying your wife "gross" like this is a red rag to a bull with HMRC.

Post the Arctic Systems case and until new rules come in in April, there might be an argument you could pay her as much as you like (many do) but probably not to be recommended.

jaype

Murdina - thanks, I am seemingly pointing them in he wrong direction then - the action I recommended was something I did in our family business as I am a sole trader also, but perform a similar role to his wife in our company as and when I'm needed (PR and admin).

Just FYI of anyone like us who may be be affected by changes to Income Shifting legislation, Robert Smith MP is proposing an early day motion against this - please lobby your MP to sign this. There are about 55 signatures on it so far but it needs 100 or so to be taken seriously. I sent my MP (Jacqui Lait, Cons Beckenham) a quick email and she has also agreed to sign. Just Google them - it's easy....

Murdina

lots of the professional bodies are busy campaigning on this too. I am happy with the democratic principle that if an elected government decides something is not on, they can legislate against it, but here we have something which is a) completely nightmarishly unworkable and b) totally goes against the principle of independent taxation. Unworkable law is bad law in my view.

(by the way I already wrote to my MP about the EDM! Please everyone else do the same!)

fengirl_2

You can't just declare yourself self employed or we would all do it! Its the relationship between the employee and employer which is key. One of the tests for self employment is 'can you send somoene else to do the job?' I guess not in this case!

stphnstevey

Could you not just make her a director and pay her via dividends at 10% tax?