Paying wife salary as well as dividends

[ready_to_leave]

The salary thing is interesting.

If I'm benched for a year, does this mean I shouldn't draw a salary for that year as I'm not actually doing any work?

(Hypothetical question)

Commensurate work for a given rate is nonsense, when a third party is the judge rather than the two contractual parties involved.

Who decides what is appropriate? Does Bob Diamond justify £25 million a year in total comp?. Does HMRC step in and demand time sheets and demand evidence that this rate is justified.
Do I demand that HMRC provide me evidence that their middle managers work justifies their take home salary.
It is entirely up to the two parties as to what rates are payable, its called a free market.

This allowed pay for an amount of work is a load of old horse manure. The market rate as you can readily see from contracting and salary negotiation is what someone will pay, and if they want to pay £500 to get their windows cleaned or have a haircut, then that is the rate that is appropriate for that transaction.

The alternative is what? state sanctioned rates for activities. Some notional 'market rate' is fantasy as even similar roles in contracting can vary between £200/day and £1000/day depending on the industry for essentially very similar activities.

Its a meme put about by HMRC who do not like this at all and wish that the state set all rates and each transaction was taxed to the hilt. Otherwise they are constantly worried that someone is "getting away without paying their fair share". The sole purpose of this meme is force people to think that they have to justify the level of work done. If you find yourself agreeing you should stop and consider if you are buying into this propaganda position of socialism.

[northernladuk]

good stuff.

I can see the logic in this. We pay guys to work on the roads and when I drive past they are not working on anything. Doesn't mean they don't get paid. Silly example but I think it makes the same point. The thing is they have a job role and if they don't have any work to do they still have a role.

Now... r-t-l's point is terrific from one side but consider the other. HMRC are coming investigating. They need proof or due diligence to be happy so you are on the defensive and have to prove it. The worker shows his role profile and other work he did even though he was standing with a coffee when the inspector called. If you pay your wife 8k.. it has to be for something.. not to you maybe but to the guy coming investigating. If you cannot prove this then you will be caught bang to rights avoiding tax.

As I say great point, you can pay someone for doing nothing, but not if it at risk of being a blatent avoidance technique... and lets be honest here, that is what 90% of pay my wife set ups are, and HMRC know it.

[psychocandy]

Loads of people keep paying mine!!!

Do you tell her shes not cut out to be a wife when she doesn't do the dishes?

[psychocandy]

The salary thing is interesting.

If I'm benched for a year, does this mean I shouldn't draw a salary for that year as I'm not actually doing any work?

(Hypothetical question)

No. Stop paying yourself and go and claim JSA.

[ASB]

As I say great point, you can pay someone for doing nothing, but not if it at risk of being a blatent avoidance technique...

I'm pretty sure that is actually incorrect. Truly you can pay anyone however much you want for doing anything (something or nothing). I don't believe HMRC have the power to recategorise in any way - save for potentially applying the settlements legislation (perhaps Greg or similar could confirm or refute this).

BUT this doesn't mean that the avoidance will necessarily be achieved. HMRC do have the power to determine it was not wholly for business purposes. In this case the employee deduction will have been made in the form of IT and NICs, however it would not qualify as a deduction for CT purposes thus it would ALSO be subject to CT.

For the terminally bored I looked up a couple of threads to find some relevant cases. Disallowing "the wife

[northernladuk]

I'm pretty sure that is actually incorrect. Truly you can pay anyone however much you want for doing anything (something or nothing). I don't believe HMRC have the power to recategorise in any way - save for potentially applying the settlements legislation (perhaps Greg or similar could confirm or refute this).

BUT this doesn't mean that the avoidance will necessarily be achieved. HMRC do have the power to determine it was not wholly for business purposes. In this case the employee deduction will have been made in the form of IT and NICs, however it would not qualify as a deduction for CT purposes thus it would ALSO be subject to CT.

For the terminally bored I looked up a couple of threads to find some relevant cases. Disallowing "the wife

I don't think 'incorrect' is the right term. I do agree you can per her for doing nothing but as I said come investigation you are on the backfoot to prove you are not just avoiding tax. You have to prove that you are paying her for nothing and not that you are paying her to avoid tax and in the situation they are trying to prove the latter, which is in fact the same thing so it won't work.... You then further elaborate to make my point so I actually think we are on the same page overall.

If contractors pay their wives to reduce tax and she does f all, fair enough, you can do that, no arguments from me but when HMRC comes in....

HMRC : What does your wife do for 8k a year?
Me : Books, jobfinding, paperwork
HMRC : Show me
Me : Well she hasn't done anything.
HMRC : Pants down and bend over son.

You can pay someone nothing for doing a role that is fine but if that role doesn't actually exist and is manufactured avoid tax you are in trouble. I can't see how HMRC can't recategorise that? What is possible is great, what you can get away with is different surely?

Also forgetting the theory the reality we are talking about is contractors paying their wives to avoid tax... it's why they do it so it is tax avoidance, you are just leaving it up to HMRC to try prove it relying on a bit of theory to get awy with it. Not a position I would like be in.

Now... if you did put some effort in to it and had something to demostrate she even knew what she was doing it and maybe even some evidence then yes, much stronger position. You might even get away with tax avoidance in that case. I just don't think many people do.

I can't view that link by the way, keeps locking my system up. Can you post the URL so I can try copy it?

[northernladuk]

Forget that I got the link working but i can only read the comments. Might register as that looks interesting.

Just to note though every example given in the comments the wife played an active part in the business........

[ASB]

Forget that I got the link working but i can only read the comments. Might register as that looks interesting.

Just to note though every example given in the comments the wife played an active part in the business........

It is well worth registering with accounting web in my view. There is a lot of good stuff on there and also a wealth of useful comments as to what has actually happened in practice.

The point I was making was simply that you can pay any salary you want to anybody. HMRC are not really able to attack the actual payment as such. What they can do is challenge whether that salary is for business purposes. If they do this successfully you would actually be in a worse position than had the salary not been paid in the first place, it would lead to a CT bill on the salary in addition to any payroll taxes deducted.

Incorrect probably was a poor choice of word. You can pay somebody a salary even if it is blatant avoidance, it's just that you won't actually achieve the avoidance in the event of a challenge.

[Lewis]

Derek Conway - Wikipedia, the free encyclopedia

"Conway employed his son Freddie as a part-time researcher, while Freddie was on a full-time degree course at the University of Newcastle. Conway paid his son the part-time equivalent of a £25,970 salary, amounting to a sum in excess of £40,000[6] over three years, including pension contributions.

...

After an investigation, in January 2008 the Committee found there was "no record" of what work Freddie had done

...

They recommended that the House order him to repay a sum of £13,000"

So it would seem HMRC consider £27,000 reasonable for doing nothing.

[ready_to_leave]

I don't think 'incorrect' is the right term. I do agree you can per her for doing nothing but as I said come investigation you are on the backfoot to prove you are not just avoiding tax. You have to prove that you are paying her for nothing and not that you are paying her to avoid tax and in the situation they are trying to prove the latter, which is in fact the same thing so it won't work.... You then further elaborate to make my point so I actually think we are on the same page overall.

If contractors pay their wives to reduce tax and she does f all, fair enough, you can do that, no arguments from me but when HMRC comes in....

HMRC : What does your wife do for 8k a year?
Me : Books, jobfinding, paperwork
HMRC : Show me
Me : Well she hasn't done anything.
HMRC : Pants down and bend over son.

You can pay someone nothing for doing a role that is fine but if that role doesn't actually exist and is manufactured avoid tax you are in trouble. I can't see how HMRC can't recategorise that? What is possible is great, what you can get away with is different surely?

Also forgetting the theory the reality we are talking about is contractors paying their wives to avoid tax... it's why they do it so it is tax avoidance, you are just leaving it up to HMRC to try prove it relying on a bit of theory to get awy with it. Not a position I would like be in.

This is exactly my point. By entertaining this concept as valid one is explicitly starting with the framing that justification is required which, by logical extension, leads to allowing HMRC to decide what is appropriate and therefore effectively setting market rates for an activity. Once you even consider it in these terms then the argument is already over.

This is exactly the sort of non-legislative subtle chipping away at private transactions that HMRC want to perform to drag people into their fantasy admin-centric totalitarian world view. You can actually move people a long way down a path this way without actually having legal right to do so.

Its called anchoring and is a great way to make sure all discussion is then pivoted around the initial framing no matter how invalid that may be.

You can frame almost anything as to do with Tax avoidance - its like national security and lets you get away with pretty much anything. Its like the crackdown on 'legal but aggressive tax avoidance', what the F*** is that. Its either legal or its not, but no HMRC frames it like that and the argument is theirs all the way.