Quick Q - paying spouse

[fruitful]

Hi all,

I know this has been asked many times but I can't find the answer from searching.. I need some urgent clarification to some advice I've been given...

My understanding is that a self employed person can pay their spouse so long as the wage is at the market rate and it can be shown that the spouse actually worked within the business. I am sure I have read on these pages that this also means that the payments should actually be made to the spouse within that given tax year. ie this cannot be made up after the end of the tax year for the benefit of reducing profits.

I would be grateful for your insights ASAP!!! And if anyone has links to HMRC guidance that would be awesome as I cant find those at the mo either.

Thank you in advance,

[Scalloway]

Paying your spouse is only worthwhile if they have no other taxable income or are in a lower tax bracket than yourself. Your understaning on the rest is correct.

[sanjiv]

Sole Trader or Limited Company? With sole trader I don't think you have to make the payment but this needs to be clarified by accounting boffins.

[fruitful]

Thanks for the responses so far guys.

I think those lovely boffins are in bed! Will have to wait for the morn I think.

[elainec100@cheapaccounting]

We just did a short piece on this in our August newsletter:

http://www.cheapaccounting.co.uk/blog/?p=667

Employing spouse / Children
If your spouse pays tax at a lower rate than you or has unused personal allowances, then your business can pay them a salary, reducing profits and tax. However, you can only pay them a salary for the work they actually do, and they should be actually paid the salary. Another route to consider is making your spouse a partner or shareholder in the business.
The same principle applies to children (over 13) who can also be paid a wage to use some of their £6475 personal allowance. Again, they should be paid an amount that is reasonable, the money should be actually paid to them (and once it is the money is theirs!).


Hope it helps.

[fruitful]

Thank you Elaine. It does help and confirms what I remembered.. probably from your advice in the past!

The question is what should I do if I have been given professional advice to do this?
How much of a gray area is this with the industry? It seems pretty balck and white to me I must say?!?!?

I read last night (having eventually found the HMRC manuals) something that said payments could be made up to nine months after the end of the tax year but there will not be enough money for this to happen. It also raises issues of registering as an employer etc, none of which have happened. There is also only a small amount of the other person's personal allowance to use up, approx £1000 so I think I'm right in saying there is little benefit in doing this?

Tired and confused after only 2 hours sleep :(

[elainec100@cheapaccounting]

OK ...

Firstly go get some sleep as things things always seem easier when you are not so tired! Do you have little ones?

Then:

- do you have an accountant? Get them to work this out
- would this be a second job for your spouse?
- are you a sole trader or limited company?

[fruitful]

Thanks Elaine :o) No little ones to worry about yet! Yes some sleep would be a good idea! Unfortunately I am waiting for a builder to turn up to look at the rising damp in the kitchen!!! So a cuppa will tide me over but I'm not going to let this get to me.

I'm concerned because its the accountant who has proposed this. Sole trader, spouse has other jobs. Partnership is preferred route.

Don't want to say to much more online.. just wanted to see if I was being too much of a stickler!?!

[elainec100@cheapaccounting]

If other job then the accountant needs to sort out your spouse not being issued with a BR tax code on second job with you.

Difficult to advise without all the facts e.g. your level of profit, if limited should be considered or as you say a ptn.

All i can say is that if you are not happy with the advice given then do get a second opinion.

[fruitful]

Yes, I realise its not very clear to the outside world!

The whole thing is being done as an after thought to the 2009/10 tax year. Its not what we had originally discussed so am a bit taken aback at a suggestion I thought was not allowed.

Wishing I'd chosen an accountant from these forums now but thought local would help us in our particular situation. Ho hum, you live and learn.

Thanks again for responses :o)

[David Griffiths]

I read last night (having eventually found the HMRC manuals) something that said payments could be made up to nine months after the end of the tax year

Payments of salary (or bonus) can only be deducted if they are made within nine months of the year end AND there is a contractual liability to pay actually in existence at the year end.

This route can allow a company to reserve for performance related bonuses, but it does not allow you to suddenly back date payments of salaries. Bearing in mind that the payment must represent the "rate for the job", you wouldn't get any other employee to accept payment nine months later, so for me it's a non starter for spouse's wages

[fruitful]

Thank you David. I have to say I'm with you. Although I would say a spouse is the ONLY employee who would wait 9 mths for money, because of the relationship!

Am so confused. Have lost confidence in my accountant and been getting second opinions in case I need to switch. One firm of chartered accountants says that retrospective partnership (for tax year just ended) sounds v dodgy but retrospective employee not too bad, as in it is done and not much fuss made.

But have just called HMRC and spoken to someone in the technical dept who said either was fine, it just depended on the definitions and what we wanted to do. But he couldn't really tell me what was right and wrong.. that was my accountant's job!!! I didn't expect miracles from HMRC but I did at least expect some rule quoting... maybe that is expecting a miracle???!!

Not sure who to believe but basically I just want an accountant whose advice I can trust. I don't really understand how there can be SO many different views on one set of rules.

What do people here think on

a) retrospective partnership
b) retrospective employee (i'm not keen due to the payment issue)

Thanks again, your help is v much appreciated

[Williams lester]

But have just called HMRC and spoken to someone in the technical dept who said either was fine, it just depended on the definitions and what we wanted to do. But he couldn't really tell me what was right and wrong.. that was my accountant's job!!! I didn't expect miracles from HMRC but I did at least expect some rule quoting... maybe that is expecting a miracle???!!


Don't trust anything HMRC tell you on the telephone, most of their staff have no tax training whatsoever and are in effect just call centre staff working from scripts and flowcharts!

You may be able to rely on an opinion they put in writing....but not if it is incorrect advice!

The important thing is, if you have lost confidence in your accountant, then see a couple of others and see how you feel after a chat with them. Most things tax have shades of black, white and grey and will depend on the level of risk you wish to take...

There are quite a few accountants on here who would be happy to quote you for services, why not put something in the Tenders section of the forum and see what happens. :D

[gouldie0]

Don't trust anything HMRC tell you on the telephone, most of their staff have no tax training whatsoever and are in effect just call centre staff working from scripts and flowcharts!


Don't I know it, I had the pleasure of educating one of there so called experts today regarding a tax refund for overpaid tax. He just wouldn't listen to what I had to say.

Kind Regards

Neil