Creating a joint partnership with wife (are my maths correct?)

[seanalltogether]

I'm still learning my way around how taxes work and I believe I'm leaving a huge amount of money on the table by keeping all my current income under my name, does the following scenario sound right to you guys? I've tried to simplify the numbers below to make things easy.

My wife works part time and earns £15,000 / year, I'm expecting to make £85,000 / year in profit through contracting. Assuming I do a simple self assessment tax return the expectation would be the following

Wife: 15000 - (1500 normal tax) = £13,500
Me: 85000 - (26700 normal tax = £58,300
Combined we would take home £71,800

However, if we set up a joint partnership with 50/50 ownership split and I pay myself £45,000 / year (for the sake of simplicity), and distributed the remaining £40000 equally between us, it should look like this

Wife: 15000 - (1500 salary tax) + 2000 tax free + 18000 - (1350 dividend tax at 7.5%) = £32,150
Me: 45000 - (11000 salary tax) + 2000 tax free + 18000 - (6750 dividend tax at 37.5%) = £47,250
Combined we would take home £79,400

Does this look right? Is there something obvious I'm missing? I understand I could lower my salary further to optimize the value of the dividend, or change the partnership split to bring my wife right up to the edge of the £46350 tax band, but otherwise does this seem right?

[northernladuk]

I dunno about your numbers but your terminology isn't correct. You aren't creating a partnership, your splitting the shareholding. You should possibly think about making her a director as well.

You've been contracting awhile. Do you not have an accountant who will advise on this for you? Fag packet numbers on an anonymous forum isn't the best way to plan for this.

You are aware of S660 and 'income shifting' or have you just run the numbers? There is link in the guides on the right called S660 you should read.

[Spoiler]

However, if we set up a joint partnership with 50/50 ownership split and I pay myself £45,000 / year (for the sake of simplicity), and distributed the remaining £40000 equally between us, it should look like this

Wife: 15000 - (1500 salary tax) + 2000 tax free + 18000 - (1350 dividend tax at 7.5%) = £32,150
Me: 45000 - (11000 salary tax) + 2000 tax free + 18000 - (6750 dividend tax at 37.5%) = £47,250
Combined we would take home £79,400

Does this look right? Is there something obvious I'm missing? I understand I could lower my salary further to optimize the value of the dividend, or change the partnership split to bring my wife right up to the edge of the £46350 tax band, but otherwise does this seem right?

Not sure that the best way is to pay yourself £45,000 salary. Likely more tax efficient to pay a lower salary & divis. Or maybe the same salary as your wife, and then pay out divis 50/50 up to the HRT limit (if that provides enough cash to live on)- not maximising efficiency, but I like things to be simple !
Either way, ask your accountant

[WordIsBond]

I'm still learning my way around how taxes work and I believe I'm leaving a huge amount of money on the table by keeping all my current income under my name

Partly right. You left a huge amount of money on the table already by not paying a few quid to an accountant to advise you when you started.

In most cases, you should:
A. Form a limited company.
B. Engage an accountant who understands contracting. Your local guy might not even if he says he does. Ask him to verify that what I'm saying here makes sense in your case.
C. Divide shares roughly equally between you and the Mrs. In your case, since she has a £15K salary, you probably want to have something like 5 shares for you and 4 for her.
D. Pay yourself a salary of £700 / month.
E. Inform the AE people that you don't have any non-director employees, so they don't bug you.
F. Have your company make contributions into a pension for you. Probably 5% minimum, more if you are past the age of 30 and you aren't well on your way to a nice pension already.
G. Pay dividends to bring either you or Mrs up to the higher rate tax threshold.
H. Don't pay more than that and so end up paying higher rate dividend tax. (If you need more than that, you should cut back on your spending until you've built up a nice reserve in your company to cover you for down time between contracts.)

You've now discovered you were leaving money on the table. That's great. What else are you missing? A good accountant should look at your business and ask a few questions and be able to tell you if there is anything else.

If you DO have an accountant and he didn't advise you about the pros and cons of giving your wife shares in your company, get a new one.

[seanalltogether]

Thanks, I know that I threw a lot of numbers out there but I guess the crux of the question was whether I should/could use my wifes current low salary to our advantage by pushing dividends to her since she would have a low rate of tax still. it sounds like the answer is yes

[northernladuk]

Thanks, I know that I threw a lot of numbers out there but I guess the crux of the question was whether I should/could use my wifes current low salary to our advantage by pushing dividends to her since she would have a low rate of tax still. it sounds like the answer is yes

Maybe but go get the advice of a specialist and do it properly would be the best course of action.

[Old Greg]

Maybe but go get the advice of a specialist and do it properly would be the best course of action.

And the second best?

[northernladuk]

And the second best?

JFDI off the back of some questionable advice from a bunch of strangers on the Internet.

[Old Greg]

JFDI off the back of some questionable advice from a bunch of strangers on the Internet.

Job's a good 'un.

[northernladuk]

Job's a good 'un.

Just need to make sure they run all the funds through that Caymen set up you use now.