I have a client whose wife works for him but at the moment he doesn't pay her officially. I want to tell him to pay her under the LEL so that he doesn't have to worry about a PAYE scheme. What would the wife have to do in terms of the money she gets? Would she have to complete a tax return? Or call HMRC to let them know of the earnings? She doesn't have another job. Thanks
but the over-riding reason is if the Revenue cannot, for some reason, correctly agree your tax in a given year. In recent times, people have been required to do so for ignoring P800 assessments and P161 forms, which are not specified in the link.
On the whole, I wouldn't say it is worth changing her affairs just to avoid SA and paying her officially will make it far less likely that they encounter problems with HMRC.
Well the short answer is that there's no umm-ing and ahhh-ing about the advice you must give, and that is they must come clean to the Revenue so that they can start again with a clean slate.
I get the impression that this isn't terribly serious case but nevertheless, if it is, I would want to know:-
if he has been paying her from monies already taxed
how long it has been going on for (have accounts already been filed claiming wife's wages)
how much over the personal allowances had been paid and
especially, an insight as to why they carried on this way.
If, for instance either had been a payroll clerk or accountant in a previous existence then I'd expect penalties to come under the heading of 'careless and deliberate'. On the other hand, if they had evidence of having been mis-advised by the Revenue, then they'd be unlucky to be charged penalties at all due to 'reasonable excuse' and you'd consider appealing against any imposed.
There is a potential offset of reduced liability against penalties and interest on late payment. The longer they have been paying her the more penalties will be AND the more likely that this was intentional evasion.
In other words, I'd consider the whole picture. This is so I could give them an idea of what they will have to face and also so I knew better what sort of client I'd got on my books.
Hope that helps but do let us know what you decide or if you want to share the sort of the facts I've bulleted.
Kind regards,
Tim
EDIT : missed word
-- Edited by Don Tax on Thursday 10th of October 2013 09:11:10 PM
I don't see that there is a case at the moment. They run the business together. He is a sole trader adn they have a joint bank account so no payments would actually take place if he was paying her as it's the same account. They have not included wages for her in his previous tax return because they didn't realise they could. They don't do bookkeeping during the year and have asked me to do it now for the whole year. As such what is wrong with allocating some payment to her in the accounts when she is doing half the work? Obviously as there is no PAYE scheme it would have to be under the LEL.
As they run the business together, have you thought about a partnership?
You won't be able to put wages down as a deduction for her but, depending on her other income you may gain access to more than the LEL by way of her personal allowances - pros and cons being additional tax returns but no PAYE administration.
Well you don't need a PAYE scheme so debit Wages and credit drawings say £106 x Number of weeks in the accounts - obviously she'll not get NIC credits.
Thanks Tim. That was what I was thinking. My original question was if the wife would then have to complete a tax return given that there was no PAYE scheme.
LOL yeh..... took me a while but I got there in the end. She wouldn't be named anywhere and the income wouldn't be reported except under Enquiry.
All I'd say is check that she left any previous employment before the 2012-13 and there isn't any other income going to throw a spanner in the works: eg. taxable benefits, pensions or investments that take her over her personal allowances.
