If self employed man pays his wife a small monthly salary for part time clerical duties, is it necessary to complete a formal payslip? The salary is below the personal allowance for income tax and the lower earnings level for NICs, and she has no other earnings in the tax year. Are there any formalities to observe to ensure that HMRC will allow it as a business expense?
Some sort of paper audit to show that it has actually been paid? Such as a standing order to wife's account.
It would be better to register a payroll scheme with HMRC.
Why?
I'm not being fecetious here, and I'd agree if there were any chance of the wife's (or any other potential employee's) wages creeping above the LEL, but if that's not going to happen, wouldn't it be a completely unnecessary bit of admin for her to take on?
It's sounds as though it a scam:-(
CRF
Chris Fishwick said.....
Why? Wife does a few hours a week filing. No other income. Salary never going to exceed lower earnings level or tax threshold. Where is the scam exactly, please?
Tax evasion, VAT evasion, ad infinitum. Easily done and is especially with the so called "self employed"
The only people in the UK that pay their dues are on PAYE and therefore honest! Although probably they'd like to rip off the IR but can't ;-)
CRF
It's just to be certain that there's no problems with it being not accepted. It would also be easier to pay more without a last minute panic.
How does that introduce certainty? There's no danger of it not being accepted (in the end, at least) if she is being remunerated for actual work done (as opposed to just filing her nails). Are you suggesting that If there were an intention to deceive, setting up a formal payroll scheme with nil returns would make it likelier they would get away with it?
Chris Fishwick said.....
Well that's simply parading your jaundiced opinions about the self employed. Payment to a wife is a legitimate business expense provided it is for work actually carried out. My question was quite specifically about whether or not it is necessary to issue formal payslips or if other evidence is needed or advisable in the event of any challenge by HMRC. Do you have anything useful to contribute?
It's not going to do any harm is it? If you ever increase your workload you'll be all set up.
I wasn't suggesting that. But if you want to raise the issue it would!
Isn't it? What about the extra workload involved in setting it up and administering it? They might need to get an accountant to do it for them when at the moment they don't need one. Money down the drain.
[Don't mention the drains. He might be a plumber.]
Yes that's exactly what my accountant (a former tax inspector) told me: the money has to be actually paid to her for real, not just notionally.
My business (ltd) pays both myself and wife below thresholds so no NI, no tax. Simple payslip is used. PAYE on-line calculator and printouts used. Even get back 250 for on-line P35 filing.
This has all been inspected by HM Inspectors. There is absolutely nothing wrong with it.
I disagree. After all, there is no rule (of law as opposed to what is sensible) which says the business has to have a separate bank account from its owner, or that the owner has to have a different bank account from his wife. The bank would have kittens if Mr X wrote a cheque (from Mr & Mrs X's joint account) to Mrs X who then paid it into that same account.
What administration is involved any more than at present?
Unfortunately, in your scenario there would be insufficient evidence to support the view that wages were being paid.
Why is such evidence needed? The relevant question is whether work was done to justify the wages. If all three entities involved, i.e. the business, its owner, and his wife (leaving aside the semantics about the business and its owner not really being two different entities), happen to share the same bank account, then any nominal wages payment, just like any nominal drawings or capital introductions, can be recorded in the accounts even though they don't correspond to any "real" bank transactions. They would correspond to virtual bank transactions. The business accounts would show double entry [Dr Wages, Cr Bank] whilst the wife's notional personal accounts would show [Cr Wages, Dr Bank] but because both "Bank" accounts here are the same, there would be no actual bank transactions at all, but *that doesn't matter*.
OK, it's not a terribly likely scenario for even a small family business not to have a separate bank account from its owner, but it *is* (I'd have thought) pretty common for husband and wife to have just one personal account between them. I'd say it would be perfectly OK for a single transfer to be made from the business account to the joint personal account regularly (e.g. monthly) of the form [Dr £200 Wages, Dr £1800 Drawings, Cr £2000 Bank].
I don't know, you tell me. Doesn't it involve regularly filling in extra forms, recording all the payroll payments which it is being claimed are being made?
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