useage of a stay at home mum's tax free allowance

"Andy Pandy" wrote

Do they even need to swap? Can (eg) the husband employ his own wife (instead of the neighbour) to do the childminding...?!

A far better way is for the 2 neighbours to own a ltd company, where each company employs the mother at a rate just below the NI threshold.

The company makes a charge, and the tax credits pay 80% of this amount (I thought this was 100% if the child care is carried out in the mother's own home).

The company pays the mother the appropriate salary.

The profit can then be paid as dividend the shareholder, or left in the company to accumulate wealth or for the shareholder's pension arrangement, with then no further effect on tax credits. As long a the number of children are cared for in an equal number in both companies, then things should even themselves out! If not then of course there can be a "very" private arrangement!

Of course a car must be provided to ferry the child to and from school etc, so if the company provides a car and since the mother is employed with a salary less than 8,500, then a company car becomes a tax free perk. Similarly for mobile phones. Also if the mother has a child, she'll get the requisite maternity benefit from the government as well!!

QED

It's more to the fact that when going from unemployed to employed, the rules change, normally to make the earning person less well off. There's also copious reams of paperwork to complete for claims such as housing and council tax benefit. It's not unknown for tax credits to be incorrectly calculated leaving people in a financial mess.

All in all out benefit and taxation system is an haphazard bureaucratic mess.

Dividends will affect tax credits. Pension contributions won't but that is really better done as a personal plan rather than a company plan because then RAS works to give tax relief even where no tax is paid!

That's a good one - but will employers class 1A NI be payable?

Indeed, but this applies to self employed as well doesn't it?

Not usually. The main exception is where SMI is paid (mortgage interest support), because there's no taper as there is with other means tested benefits - it's simply cut off when you work over 16 hours IIRC.

But - there's very little incentive for someone with kids and an unemployed partner to take a job, as the gain is usually trivial. Whereas there's a big incentive for someone with a partner on a decent wage to take a job, thanks to independant taxation, childcare support, and the regressive nature of tax credits and benefits system.

Hence the sharp divide between 2 earner households and no earner households.

Yup.

As you say dividends do affect tax credit.

I accept what you say about RAS, but assuming the "employee" has already used up their personal limit, it may still be an idea to pay into the "company" pension fund since it'll be net of corporation tax, as an alternative to keeping the cash in the company, or receiving dividend and getting a substantial hit on tax credits.

Not sure, possibly, but it won't affect a tax credit award since they only take into account of taxable "benefits in kind". I thought 1A NI was only

But not if you look after you're own children directly, rather than through an umbrella type company of the type above.

Andy,

Appreciate the thread is long dead even if the issues aren't.

Just wondering, in your opinion, what advantages/disadvantages there might be to an employer of 'employing' my wife/partner to work from home as my 'very personal assistant' (make sure I leave the house on time for work, look after children in my absence, wash, iron, do daily shopping, prepare meals etc.) at say half my salary on straight a salary sacrifice basis, i.e. simply halve my salary pay her the other half?

We'd benefit from dual tax allowances and whilst our joint NI contributions would go up significantly, at my pay scale we’d re-qualify for child benefit, and my employer would actually pay lower employers NI contributions.

I could see overcomeable issues with my pension contributions (don't include her in the scheme, but double my contributions) and as my VPA her job would be directly linked to my job in the event that I left my employer or was fired/made redundant, her position would automatically become redundant too (could probably be tightened contractually).

Assuming no legal/regulatory bar, would obviously require a very complicit employer, but I could also see it as 'perk' that might well help reduce staff turnover as people would be less inclined to move to a less 'understanding' employer.

It might seem a lot of faff for what might seem like relatively small additional benefit, but if I've got my figures right, for the 2011-2012 tax year, for someone earning £70k, i.e. twice the higher rate tax bracket limit, with two children, total additional benefits nett of tax comes out at approx. £8,260 per annum, which would require the equivalent of almost a 20% rise in gross pay to achieve the same nett additional benefit - worth having I would argue.

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