Ltd company, secretary's salary

[Goodmans]

Dear Contractors,

I am a self-employed contractor through My Own LTD Company. I am the whole and sole share holder of the LTD Company.
My wife is working as Secretary to the company and I am paying her the minimum salary.

Now I am thinking of asking her to build a web-site for my company and for that I want to pay her some more. She is well qualified to do this job.

Can you please give me any suggestions?
Will there be any problems with HMRC.
How much do you think it will cost for this job?

I want to build a site on the content I am experienced. I will help her collecting the information and she will also involve in collecting the information on the subject and build the web-site and maintain it and adding new topics etc.

Regards
G

[Clare@InTouch]

I can't comment on the techi side, but as far as salary goes HMRC won't mind at all if you pay her extra for doing more work - you'll be paying tax and NI on it in full so it's not as if you're gaining any tax advanatge over employing a third party to do the work.

[ChimpMaster]

Why pay her a salary? You'll have to pay Employer's NI on it won't you, and go through all the employer hassle.

It might be preferable to just pay her as a consultant for the job at hand, say £5k which she can declare on her SA (I wouldn't know how though!)

[RichardCranium]

Have a read about 'income shifting' and 'Section 660'.

With the recent creation of the new Office of Tax Simplification, Section 660 could now be back in the spotlight as part of the Small Business Tax Simplification Review," Cottrell said. "Contractors who have entered into such arrangements should remain vigilant."

[SueEllen]

She may actually do some proper work as a secretary.

I've met 2 contractors whose other half's have been their secretarial service simply because they had more than one contract at a time i.e. they were actually running a proper small business.

[d000hg]

You say you already pay her "the minimum salary". What do you mean by this? I thought it was not wise to pay a salary to someone who holds a title unless they actually do some work... e.g MPs paying their family to be a "researcher".

[Wanderer]

I am the whole and sole share holder of the LTD Company.
My wife is working as Secretary to the company and I am paying her the minimum salary.
Now I am thinking of asking her to build a web-site for my company and for that I want to pay her some more.

If you start paying her more salary then your LTD will be hit with a bill for Employers National Insurance and she will have to pay PAYE and NI.

Presuming you are pushing the higher rate tax and your wife doesn't earn a substantial income already, why don't you just treat the company as a family business, give your wife equal shares in your company and do a dividend split with her.

I'm sure that some people will give you a line about S660, settlements and income splitting and they are going to crack down on this (like they have been saying for the last 5 years). Get some professional advice from your accountant on how to restructure the company and go with the income splitting route which is what everyone else has been doing for donkeys years.

[d000hg]

There might be no shred of legal evidence to support me in this, but I find the income splitting/shifting to your partner makes me rather nervous. The idea of it is that a 1-man company can frequently, in reality, suck in a huge amount of both husband's and wife's time. But a 1-man IT consultancy company doesn't really fit this pattern; it's not like my wife is packing and posting all the stuff I sell on eBay or helping me write quotes as a builder.
So it's a case we're within the letter but not the spirit of the rules and HMRC seem fairly happy to attack people who in their eyes "know they're exploiting a loophole".

Just my £0.02, to reiterate it's personal opinion only.

[Wanderer]

The idea of it is that a 1-man company can frequently, in reality, suck in a huge amount of both husband's and wife's time. But a 1-man IT consultancy company doesn't really fit this pattern; it's not like my wife is packing and posting all the stuff I sell on eBay or helping me write quotes as a builder.

True, but you can make ANYONE a shareholder in your LTD company and pay them dividends. They don't have to actually do any work for the company.

Paying a salary is another issue, if you pay a connected person a salary then they should be doing some work for the company. Perhaps your company needs a trusted person to do the admin (including accessing online banking) which you simply couldn't trust to someone else.

What individuals actually do depends on how much of the FUD spread by HMRC they swallow...

[xoggoth]

If you can show that the wife has done genuine work done at roughly what it would cost elsewhere would it be a problem? According to CUKs article on income tax shifting:

Under the legislation, taxpayers must detail how much income they have ‘foregone’ by making a comparison with how the business would have operated, had all their work been done independently on a fully commercial basis.

One assumes that payment for doing a small website is not that much anyway.