Paying yourself and spouse wages....

[Craig at Nixon Williams]

Whilst this sort of arrangement may not have been questioned often in the past, there clearly is scope for it to be challenged in the future. The issue of tax avoidance is frequently mentioned in the media so if the government wants to score easy points with the public then this could be a potential area for them to have a go at...

If you do pay a salary to a family member, it doesn’t mean that HMRC will open an enquiry but if they did then it could be one area for them to question. Ultimately the decision on this is going to depend on your attitude to risk and how confident you would be in justifying the expense to HMRC should they challenge you.

Craig

[psychocandy]

HMRC lost Arctic systems, fair and square. They have not yet got legislation through to the contrary, and it doesn't appear to be immigrant.

After coming up to 30 years in this game, 3500 or so clients, I've seen two challenges on family wages. One for a sole trader who claimed a deducton without actually showing they were paid, the other for a property investor who was paying his less than bright daughter £30,000 a year - in 1989 - for doing very little. Other than those extremities challanges generally don't happen for a sensible spousal salary for the admin/books/co sec role.

I'm no cheerleader for people not paying their fair share, but equally there's no obligation in any one not to make the most of the business and family structure they have.

So I suppose if you paid spouse £7488 a year, you'd be saving £1500 a year as opposed to this going out as a dividend?

Hmmmm. If it was me I'd be very tempted to pay the Mrs a salary of maybe £5K a year to save £1000 in tax. Would annoy me to not save £1000.

But of course, pointless if partner already earns a salary with another job...

As Jessica points out, it might be a bit borderline but you've got to weigh up the risks surely?

But then again I find that NW, as my accountants, are rarely wrong with their advice.

[northernladuk]

So I suppose if you paid spouse £7488 a year, you'd be saving £1500 a year as opposed to this going out as a dividend?

Hmmmm. If it was me I'd be very tempted to pay the Mrs a salary of maybe £5K a year to save £1000 in tax. Would annoy me to not save £1000.

But of course, pointless if partner already earns a salary with another job...

As Jessica points out, it might be a bit borderline but you've got to weigh up the risks surely?

But then again I find that NW, as my accountants, are rarely wrong with their advice.

Again, another post about paying wife to avoid tax. Not a single comment about her actually doing any work.

[Wanderer]

Whilst this sort of arrangement may not have been questioned often in the past, there clearly is scope for it to be challenged in the future. The issue of tax avoidance is frequently mentioned in the media so if the government wants to score easy points with the public then this could be a potential area for them to have a go at...

Well, I guess they could do but that would mean that MPs have to stop paying their wives and family (including out of parliamentary expenses) so those who are in glass houses are probably disinclined to throw stones on this one....

Again, another post about paying wife to avoid tax. Not a single comment about her actually doing any work.

The presumption here is that psychocandy's spouse plays an active part in running the family business and is unpaid at the present time. Paying a salary would simply be recognising the valuable contribution to the business.

It's interesting to look at the Arctic systems case - Mrs Jones was paid a salary but HMRC made no move to question her contribution to the business.

[Jessica@WhiteFieldTax]

Again, another post about paying wife to avoid tax. Not a single comment about her actually doing any work.

I'm sure the spouses (can be either way) do plenty of work, just never recognised and rewarded - the dynamics of most families, and why until comparatively recently, and mooted to be revived in part, there was an element of transferable personal allowance.

I don't think its ever that hard to justify a spousal salary in most businesses, but if in doubt let the spouse be secretary or director, both roles carry responsibility enough to warrant a fee.

[northernladuk]

The presumption here is that psychocandy's spouse plays an active part in running the family business and is unpaid at the present time. Paying a salary would simply be recognising the valuable contribution to the business.

It's interesting to look at the Arctic systems case - Mrs Jones was paid a salary but HMRC made no move to question her contribution to the business.

When did we ever presume things when giving advice. We have both seen enough posts on here about using this option and freely admitting their wives do nothing or some ridiculous 'bookkeeping admin' clause. It is normally in the same post as giving dividends as well so is driven purely by tax savings. No way do so many wives do anything physical to the company and if they are the person starts with the right intention to show she works but over time it drops off. People at gigs I have been at have discussed this and ended up as I suggest so I ain't just making this up. For every 1 that might be able to justify this there will be 100's that can't.

Am not trying to be one man fighting a lost cause. Just annoys me when people don't think about this and go for it just because it saves them tax without thinking about why etc. As I say, if you are gonna do this with no justification you might as well cook the rest of your books. Same thing.

[Platypus]

You need to show that the amount of money you pay her (that is wages not dividends) is the market rate for the work that she does.

That means you can't pay her £624 as a bookkeeper if it takes 10 minutes a month (an extreme example)

You know, I've always wondered if this is true or urban myth.

A bank pays a director millions... does it have to justify to HMRC that the payment is not to high? No.

EDIT: ok I should have read the whole thread since that's where it got diverted

But just a comment. I wouldn't pay any old bod £600 for 10 mins work, but due to the confidential nature of my records and accounts, I might well choose to employ a family member to do the work and also choose to pay them generously.

[convict]

I'm sure the spouses (can be either way) do plenty of work, just never recognised and rewarded - the dynamics of most families, and why until comparatively recently, and mooted to be revived in part, there was an element of transferable personal allowance.

I don't think its ever that hard to justify a spousal salary in most businesses, but if in doubt let the spouse be secretary or director, both roles carry responsibility enough to warrant a fee.

I was thinking about this too. All of the things my partner does to support me while I'm productive at a clients site.
1. On-call driver for when I can't. I damaged my leg and she drove me to and from work for many weeks.

2. Cleaning/Ironing work clothing. Although I don't have a uniform I do have to keep up a standard of appearance. She enables me to do this. If it's something too much, she outsources it to our dry cleaner service

3. Books/Accounting/general admin. Although some of this goes to an accountant, she keeps tabs on receipts and other billable items so I don't have to. It makes more sense for me to be productive elsewhere.

4. Goods receiving inbound. She has to receive and deal with my various computer bits and also returns busted stuff for RMA etc. so she's effectively my logistics manager too.

All this for 600/month is pretty good in my book. It may not be full-time but there is an on-call element to this, out of hours working for unsociable hours etc. too.

I'm happy having to argue her value to HMRC if necessary.

[SueEllen]

I was thinking about this too. All of the things my partner does to support me while I'm productive at a clients site.
1. On-call driver for when I can't. I damaged my leg and she drove me to and from work for many weeks.

2. Cleaning/Ironing work clothing. Although I don't have a uniform I do have to keep up a standard of appearance. She enables me to do this. If it's something too much, she outsources it to our dry cleaner service

3. Books/Accounting/general admin. Although some of this goes to an accountant, she keeps tabs on receipts and other billable items so I don't have to. It makes more sense for me to be productive elsewhere.

4. Goods receiving inbound. She has to receive and deal with my various computer bits and also returns busted stuff for RMA etc. so she's effectively my logistics manager too.

All this for 600/month is pretty good in my book. It may not be full-time but there is an on-call element to this, out of hours working for unsociable hours etc. too.

I'm happy having to argue her value to HMRC if necessary.

The 2nd point doesn't count as you have to be clothed - other people without wives who work for them wear clothes and look respectable.

The rest are very good points and I would record them somewhere.

[Craig at Nixon Williams]

I was thinking about this too. All of the things my partner does to support me while I'm productive at a clients site.
1. On-call driver for when I can't. I damaged my leg and she drove me to and from work for many weeks.

2. Cleaning/Ironing work clothing. Although I don't have a uniform I do have to keep up a standard of appearance. She enables me to do this. If it's something too much, she outsources it to our dry cleaner service

3. Books/Accounting/general admin. Although some of this goes to an accountant, she keeps tabs on receipts and other billable items so I don't have to. It makes more sense for me to be productive elsewhere.

4. Goods receiving inbound. She has to receive and deal with my various computer bits and also returns busted stuff for RMA etc. so she's effectively my logistics manager too.

All this for 600/month is pretty good in my book. It may not be full-time but there is an on-call element to this, out of hours working for unsociable hours etc. too.

I'm happy having to argue her value to HMRC if necessary.

If I offered to do all of this for £550 per month, would we have a deal? If I get a good few of you on the go I'll be able to give up on accountancy!! For the record, I'm not offering any other wifely duties...

Craig