Paying wife a wage - The Book-keepers Forum (UK)

MissyMay · Member

Paying wife a wage

MarkS · Expert

Hi K

Dont see any difference between being paid as self employed as opposed to salary provided you are doing some work and providing you are using your tax free allowance of £5715.

Normally only an issue charging to one person on self employed/ltd company basis if there is IR35 issues but as there is no loss of tax/NIC to HMRC given the level of monies involved dont see it being a problem.

MarkS

Wella · Expert

Hi K

The only thing I can see making it slightly complicated, if you went the self employed route, is that you would need to register with HMRC for Money Laundering Regulations purposes. (There is a cost to register £120 I believe). As an employee you do not need to do this but if you exceed the NI threshold then you have the payroll administration to deal with (more HMRC bureaucracy!!).

In either case they are both expenses for the company

Bill

-- Edited by Wella on Saturday 19th of February 2011 04:46:28 PM

Shamus · Forum Moderator & Expert

Surely if the husband would have gone into 40% tax bracket then paying one's wife a salary which would have been paid to yourself means that not only is there a tax saving due to use of the wifes tax allowance but also paying tax at the lower rate.

The test must be that the payment is wholly and exclusively for the purpose of the trade and NOT just to avoid or reduce tax liability.

For reference see BIM33775 here :

http://www.hmrc.gov.uk/manuals/bimmanual/BIM37735.htm

This goes pre IR35 as I remember such arguments going back to the early 90's and I believe that they had been occuring long before that.

I know that plenty of people do pay their wife and often this is on the back of their accountants advice. Personally it is not advice that I would give unless the partner was shown to be making a positive contribution to the business and the remuneration given was commensurate with the services offered.

In your case Kerry the rates that would be paid for bookkeeping / typeing services in the open market if such was being performed by someone not connected with the business should be the rates used in calculating the salary.

kind regards,

Shaun.

gbm · Guru

Hi Kerry,

There are obviously many factors which are required to give a proper answer, and Shaun does make a valid point about the commercial nature of the wages. However, if justifiable, I would look at going over the LEL; as you have ceased self employment (and presuming it's your only income), you could be paid up to £109 p/w which would qualify for tax relief in your husband's business and it would also rack up contributions towards the state pension.

Another alternative may be to look at a partnership.

MissyMay · Member

Thanks for all your comments it's definitely food for thought.

I do not have a problem in arguing that the payment is wholly and exclusively for the purpose of the trade and NOT just to avoid or reduce tax liability. I work quite a lot of hours doing the jobs
that my husband simply can't do (he is computer illiterate for a start!). I'm probably only talking about a payment of roughly £5000 a year and I'm sure for the hours I put in, this is well within market
value!

However the IR35 issue concerns me. I'm not sure if HMRC would consider me an 'employee' or working on my account. I remember from my law days the 'employee' definition checklist, one being
whether there is any form of control! (I could make a joke about that but I will refrain).

Bill to clarify, why do you think I need to register with HMRC for Money Laundering Regulations purposes?

Partnership is an option, I suppose I'm just trying to make things simple (!)

Thank you

Kerry

Peasie · Expert

MissyMay wrote:
Bill to clarify, why do you think I need to register with HMRC for Money Laundering Regulations purposes?

If you were an employee then you wouldn't need to register for MLR, but if you were self-employed you would have to. Them's the rules.

Shamus · Forum Moderator & Expert

Hi Peasie, Hi Kerry,

On the matter of MLR and employment rather than self employment have a read of this months ICB newsletter that has an article on MLR that might be of interest.

here is the link :

http://www.bookkeepers.org.uk/News/1231

The article is in the letter from the chief executive on the left hand side under "Talking of Sledgehammers". There's a bit in there about how the Money Laundering Regulations (MLR) also affected members in employment, rather than just those in practice.

Kind regards,

Shaun.

Peasie · Expert

From reading that it doesn't affect what I wrote above as regards registration for MLR.
It does make me think though, if some self employed bookkeepers are unaware of the MLR what chance is there of employees being aware of it.

Wella · Expert

Hi Shaun

How you doin'?

I read that too, very interesting. I suppose it has always been that way, as you have a responsibility to report a suspicion to your Money laundering Reporting Officer, within you workplace. Suppose the sister of responsibility is liability.

Kerry, you would only need to register if you went down the self employed route, as all persons, or firms supplying accountancy services (that includes bookkeeping) must register with HMRC (or an authorised supervisory body). The fines are quite punitive.

Strictly speaking anyone that does bookkeeping, even for free, like a club treasurer, or a spouse, should register but I believe there is no charge from HMRC in those circumstances.

Bill

Peasie · Expert

Wella wrote:
Strictly speaking anyone that does bookkeeping, even for free, like a club treasurer, or a spouse, should register but I believe there is no charge from HMRC in those circumstances.

My understanding (regarding voluntary treasurers) after reading this

http://www.bookkeepers.org.uk/news/1226

is that if you are a bookkeeper and do the work voluntarily then you need to register. If you are Joe Bloggs that has had no training in bookkeeping etc then you don't.

MissyMay · Member

Thank you everyone.

Well, to be honest I would consider myself 'Joe Bloggs' I have limited book keeping knowledge, use a simple software package to keep things in order and then
intend to pass it on to an accountant. So maybe I could escape MLR, if I argued payments I received on a self employed basis were for other administratvie duties,
for which there are lots. The MLR route seems excessive in my case, but maybe I am wrong.

Wella · Expert

Hi Peasie

What I think they are saying there is that if you are a professional bookkeeper, you need to carry out all the due diligence and risk assessment checks on your client, even if you are not charging a fee. If on the other hand you make you living in something that is not connected to bookkeeping but act as a volunteer treasurer, it is not necessary to carry out the checks. Could be wrong (often am) but thats the way I read that article

K, if you are carrying out bookkeeping on a professional basis (ie you are charging someone on a self employed basis) then you do need to register.

Just an extract from the HMRC website but it is the last paragraph that sums it up.

When you need to register as an Accountancy Service Provider

Types of business that are typically covered by the Money Laundering Regulations include:

accountants
auditors (including stock auditors)
tax advisers and tax consultants
bookkeepers
payroll agents if they provide accountancy services and/or tax advice - for example, if they calculate the tax liability, earnings or payments that are made to a business's employees or subcontractors
Customs practitioners, freight forwarders and similar businesses if they provide accountancy and/or tax services
interim (or temporary) managers who carry out any of the activities of the businesses listed above

Note that the regulations apply even to very small businesses, or where a business only does one part of a transaction. So you'd still need to register with HMRC if you were a bookkeeper with just one client, for example, or if you only kept a client's business records from which their accountant prepared the accounts.

I does appear that you have carry out the work "by way of business" to fall into registration process. If you are an employee, or not actively trying to gain income from bookkeeping then you don't need to register.

Bill

gbm · Guru

Kerry, as Peasie mentioned, becoming an employee would be the simplest option and wouldn't involve MLR.

Re the partnership comment, it happens a lot for couples in your circumstances, but the level of business is a factor (i.e. incoprporation may be an option). Would suggest you speak to your accountant about it.