Bit of a One-Off

[Alan @ BroomeAffinity]

I'd be questioning why your accountant is suggesting this. Seems like bad advice to me, and everyone else who's commented.

[WordIsBond]

If your wife's turnover is only £10K, it would still make sense to stay in the FRS if you combined. Would only cost you a little over £1K of your FRS profit.

So this wouldn't be as bad as some people here are making it out to be. You might lose £1K in FRS profit and save £500 or something on accounting fees, so hardly a loss at all. You just dropped a fact that you hadn't given before (your wife's turnover) that affects the whole picture.

I still don't know why your accountant would advise this, but I'd ask him. Because there may be other facts you haven't dropped on us that have a bearing on it.

A classic example of why accounting advice via Internet can be hazardous.

[TheCyclingProgrammer]

If your wife's turnover is only £10K, it would still make sense to stay in the FRS if you combined. Would only cost you a little over £1K of your FRS profit.

So this wouldn't be as bad as some people here are making it out to be. You might lose £1K in FRS profit and save £500 or something on accounting fees, so hardly a loss at all. You just dropped a fact that you hadn't given before (your wife's turnover) that affects the whole picture.

I still don't know why your accountant would advise this, but I'd ask him. Because there may be other facts you haven't dropped on us that have a bearing on it.

A classic example of why accounting advice via Internet can be hazardous.

OTOH, if you're only expecting to make £10k and have no other income (OP doesn't say), why bother with all of this faff? How much accounting assistance do you need? Just register as self-employed, pay the small amount of NIC and no income tax, and do a basic self assessment each year. Its not rocket science. If OP still wants to make his wife a director and shareholder that's fine, she'll just have to declare any dividends she receives to the tax return.

Put it through the company and you have the VAT implications plus you'll be paying corporation tax on the profit which if under the tax allowance seems silly to me.

[WordIsBond]

OTOH, if you're only expecting to make £10k and have no other income (OP doesn't say), why bother with all of this faff? How much accounting assistance do you need? Just register as self-employed, pay the small amount of NIC and no income tax, and do a basic self assessment each year. Its not rocket science. If OP still wants to make his wife a director and shareholder that's fine, she'll just have to declare any dividends she receives to the tax return.

I agree. Wife can still receive £5K dividends tax free over and above her self-employment income, and neither should be paying higher rate tax if they do it right.

As I said, I don't see why his accountant would advise this. But it isn't a huge hit on FRS as it first appeared.

[nato]

The original question was a general one so for the sake of keeping the OP to the point I didn't disclose every detail of my financial and personal situation.

To clarify my accountant merely made a passing comment that I have been looking into and is yet to see my books as I am moving to her atm. Once this has happened my wife will be joining the company as a director with associated income. Hence the initial thought to simple add her business income to the company at no additional accounting cost.

Having gained the advice here and investigated the VAT situation, knowing the income levels, I have decided that it would be more hassle than its worth to combine the businesses on financial grounds. That's before we even get into the costs and legal complexities when it comes to incorporating childminding, a business model focused on domestic based sole-traders.

For those that have an interest the expenses childminders can claim are pretty good and not entirely equivalent to the company expenses, that would probably swing the argument.

[northernladuk]

How is your wife going to find the time to be a child minder and work enough hours to warrant the income I expect you will be paying her through The LTD?

[WordIsBond]

How is your wife going to find the time to be a child minder and work enough hours to warrant the income I expect you will be paying her through The LTD?

LOL. For a guy who has so much sense on so many other things, you really have a thing about wives being part of the company, don't you?

Just to note:
1) At £10K / year, she isn't child-minding full time, and it won't be hard to find time to do the books, correspondence, pay bills, answer the phone, sign off accounts, etc, etc. Lots of people have two part time jobs.
2) If she earns £10K / year child-minding, there is no tax benefit to paying her a salary anyway. Maybe her profit is only £7K and he could pay her a salary of £2-3K, it's not hard to do enough work to justify that.
3) He can make her a shareholder and pay dividends without her having to work any hours at all.
4) He can make her a director and make her eligible for ER later with her working any hours.

In other words, your question is pretty much irrelevant to this case.

[fool]

How is your wife going to find the time to be a child minder and work enough hours to warrant the income I expect you will be paying her through The LTD?

They're married thus the concern with profit sharing is greatly reduced. But you already knew that despite always making that point, no?

Anyway, if the wife splitting the profits of the Ltd, the additional work and tax implications of being self-employed or running another company in addition to this probably matters and might actually offset the FRS loss.

If you want to extract every penny you'll have to do that math, but for a simplier life I'd probably just share the company, which, actually I do, but I didn't need to worry about a weird VAT situation.

[pr1]

How is your wife going to find the time to be a child minder and work enough hours to warrant the income I expect you will be paying her through The LTD?

hahaha

[nato]

To answer NLUK, I think pr1 might have taken your comment as sarcastic, and knowing MrsN's plans I would too. We have a 7 month old so she will only be taking on a maximum of 2 children for the foreseeable future (leaving plenty of time to open letters and sign some paperwork). Not sure how much experience you gents have of childcare fees but she is hoping to charge middle money at £4 an hour....... any of you guys fancy cleaning bottoms for that?

Therefore I think £10k is optimistic but possibly achievable. £2k is easy to reclaim in expenses and wear and tear so that should leave some room for a small wage as company secretary and then the dividend split. Any advice on a HMRC friendly dividend split? 70/30 sound sensible considering her services