Sole trader - Split the business?

Splitting a business is fraught with problems, especially if you have common customers, suppliers and it's a similar trade, as HMRC may deem it as artificial.

A far easier solution is simply to form a partnership with your wife. Then you can share profits in any proportion you wish, enabling you to allocate enough profits to her to keep you out of the higher rate band.

If you're worried about risk/liability, i.e. business failure, injury claims, compensation, etc., then set convert it to a limited company instead where you and your wife are both directors/shareholders, again to split the profits etc in a way that suits you.

Why not have a chat with your accountant about both options as there are pros & cons of each and you need their guidance as to which will suit your circumstances best.

Rugby-Fan-180 wrote: »

Thanks for the reply.
I'm slightly embarrassed to say I had no idea there was such a thing as a 'Partnership' setup.
This could be ideal. Is the tax payable split equally between both? (If the arrangement is based on a 50/50 split).

Currently all the accounts work is done by my wife (she works in accounts full time).
Maybe we need to get someone in for some professional advice.

You can split the profits in any way you wish and the tax payable follows on from that split. To optimise it, you'd also have to consider NIC - a straight 50:50 is often not the best outcome, ideally it should be reviewed each year and the numbers crunched.

Partnership accounts/tax returns are more complicated than a simple sole trader set up. I'd suggest you get an accountant on board for advice such as this, and also to do the accounts preparation and tax return submissions. The ideal scenario is for your wife to continue with the book-keeping and for the accountant to do the more complex yearly accounts and tax returns - that way you're not paying an accountant for the simple book-keeping work.

Pennywise wrote: »

You can split the profits in any way you wish and the tax payable follows on from that split. To optimise it, you'd also have to consider NIC - a straight 50:50 is often not the best outcome, ideally it should be reviewed each year and the numbers crunched.

Is this correct? Surely the split should reflect the hours and/or work put in by each partner. The OP is looking to avoid going into a higher rate tax band and HMRC could be unimpressed if they think the 'partnership' is an artifice to achieve this.