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Wife swapping - is it wrong?

Wife swapping - is it wrong?

Not a question you'd expect to see on this forum, but one I had to ask myself yesterday when a client (or rather his wife) came in and freely confessed to playing away on someone else's payroll. With the full consent of her husband, I might add.

There I was, fondly imagining that he'd found himself a handy assistant and dutifully doing her payslips and RTI submissions, only to discover the woman in question doesn't do a stroke of work for him. Instead, his wife comes in and helps him. Meanwhile, she's employed on a friend's payroll and likewise does nothing for him. They do both get paid by their pseudo-bosses though, or so I'm told. It's not like it's a complete fiction.

Why enter such a complicated arrangement, I wondered. Turns out it was to smooth their respective mortgage applications, as apparently lenders don't like wives working for their husbands.

I had to ask myself whether they are actually doing anything illegal here, or at least whether the husband can legally claim tax relief on the wages. At first glance, I don't see why not. After all, the work is being done, just not by the person on the payroll. I suppose you could say they're standing in for each other, permanently!

As for paying people to do nothing, we'd have to sack half the Civil Service if that was so wrong.

I wondered about mortgage fraud, but she didn't say they wouldn't have got the mortgage otherwise, just that it might have been more difficult.

Has anyone else come across this situation? It's probably more common than we think.

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25th Feb 2016 16:19

Well

aside from potential mortgage fraud the 'employees' do nothing for the business they are 'employed & paid' by so is the cost incurred for the purpose of the business claiming the salary deduction? Probably not so probably not allowable unless anyone has any other happier thoughts?

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By JimFerd
25th Feb 2016 16:43

I'd agree - it sounds like the salaries would fail the 'wholly & exclusively' test, if they aren't actually doing any work.

I guess you could argue some sort of secondment. EDIT - Oops, that wouldn't work as it would mean the wife of the employer should be on his payroll, even though she'd be working for his mate.

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By DJKL
25th Feb 2016 16:56

"Have you.........

"Have you paid any of an employee's pay to someone other than the employee, for example to a school" ought to be a familiar sounding question as one zips through the RTI submissions.

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By cfield
25th Feb 2016 17:00

Year end RTI

DJKL wrote:

"Have you paid any of an employee's pay to someone other than the employee, for example to a school" ought to be a familiar sounding question as one zips through the RTI submissions.

Oh yes. Forgot about that one! What happens if you say Yes?

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25th Feb 2016 17:09

Presumably

DJKL wrote:

"Have you paid any of an employee's pay to someone other than the employee, for example to a school" ought to be a familiar sounding question as one zips through the RTI submissions.

the salaries are equal & opposite, and in theory Business A pays Spouse B & vice versa so that the answer to that question might be "No" that leaves you with the question: can Business A claim a deduction claim a deduction for salary paid to spouse B who does not actually work at Business A (Spouse A does)? And one could easily see HMRC taking the point on enquiry & saying "No", which might be hard to argue.
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By DJKL
25th Feb 2016 17:25

Why not Yes

Paul D Utherone wrote:

DJKL wrote:

"Have you paid any of an employee's pay to someone other than the employee, for example to a school" ought to be a familiar sounding question as one zips through the RTI submissions.

the salaries are equal & opposite, and in theory Business A pays Spouse B & vice versa so that the answer to that question might be "No" that leaves you with the question: can Business A claim a deduction claim a deduction for salary paid to spouse B who does not actually work at Business A (Spouse A does)? And one could easily see HMRC taking the point on enquiry & saying "No", which might be hard to argue.

But the employee (the one actually doing the work) of employer A is wife A, but the wages she earned have been paid to wife B who is on the payroll of employer A but not an employee of Employer A, so surely the answer is Yes. The question does not ask re payment to someone else that said payment was outwith payroll (albeit implied) it merely asks if an employee's wage was paid to someone else (Yes).

An employee is surely not merely defined as someone  who happens to be paid  via a payroll/on that payroll and of course we still have minimum wage considerations re what has been happening.

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By cfield
25th Feb 2016 17:45

Year end question

DJKL wrote:

An employee is surely not merely defined as someone  who happens to be paid  via a payroll/on that payroll and of course we still have minimum wage considerations re what has been happening.

Not to mention auto-enrolment and maternity pay, amongst other things.

Just to clarify, the wages are being paid to the actual person on the payroll, so no need to worry about that year-end question as far as I can see.

Best way forward I think is for both wives to end the charade and "go back" to their husbands. It must have served its original purpose by now. They could always tell the lender the wife is now working for her husband to avoid any fraud issues. If payments are being kept up, I'm sure they won't object. After all, if you become unemployed or go on long-term sick leave, there's no need to tell the lender, is there?

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By Mr_awol
26th Feb 2016 09:52

.

cfield wrote:

Best way forward I think is for both wives to end the charade and "go back" to their husbands. It must have served its original purpose by now. They could always tell the lender the wife is now working for her husband to avoid any fraud issues. If payments are being kept up, I'm sure they won't object. After all, if you become unemployed or go on long-term sick leave, there's no need to tell the lender, is there?

 

I agree that's the best way forward - but I don't think it has any impact on your decision over your reporting obligations.

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By cfield
25th Feb 2016 16:58

Tax relief on the wages

Suppose they're both on the payroll. Then we could argue one is covering for the other. After all, that's exactly what happens when staff are sick or on holiday.

But the tax thing is just incidental really. What I'm really bothered about is whether I have any reporting obligations under MLR. I hope not.

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25th Feb 2016 18:02

MLR

cfield wrote:

But the tax thing is just incidental really. What I'm really bothered about is whether I have any reporting obligations under MLR. I hope not.

You seem to be saying that the arrangement was put in place so that mortgage applications could be made which the applicants considered might not be granted (or might not be granted on the same terms) if the arrangement were not in place - and the arrangement was a sham.

Have a look at s2 Fraud Act 2006 & ask yourself if what you have described fits the bill as far as what was said on the mortgage applications is concerned.  Frankly I think that you will struggle to say that it does not.

So then you move on to consider s330 PoCA 2002 & see if you have an obligation to report or if any of the exceptions to reporting applies.

You know the full facts, I do not.  So I leave it to you.

David

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By Mr_awol
26th Feb 2016 09:49

Tax relief the easy bit

The aim of the whole arrangement appears to be misleading the mortgage company (even if your client has mislead them into what he considers to be fairer treatment).  On that basis, whilst you could probably resolve the issue of tax deductibility with a recharge or something (bearing in mind that would have other consequences) you might wish to consider whether you'd want to involve yourself in doing so.

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26th Feb 2016 10:07
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26th Feb 2016 10:27

Wife swap...

I googled looking for a swingers website, looks like I made a wrong turn with the misleading title...

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01st Mar 2016 11:48

Tax Credits

I am sure I know of a couple of people up to a similar dodge in regards to tax credits, employing wives to make up 16 hours... any thoughts?

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By cfield
01st Mar 2016 12:09

Tax credits

jeremy28 wrote:

I am sure I know of a couple of people up to a similar dodge in regards to tax credits, employing wives to make up 16 hours... any thoughts?

The only thought I have is that Tax Credits always were wide open to fraud and error so hardly surprising this sort of thing goes on.

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01st Mar 2016 12:02

:D

Molehill=============> Mountain!

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01st Mar 2016 12:13

Never come across it before but I would be advising the client of the HMRC issues re tax deductability of the salary and your concerns regarding fraudulent mortgage applications. I am sure they would see sense and regularise this charade.

Add back the salary in the CT comps and no loss has been sustained anywhere but you still have the MLR issue to consider.

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Confounding Clients

This is a typical case of clients  'hoodwinking' the system and putting themselves at risk when there's no need to, usually cooked up over a couple of drinks between respective couples.

Employing your spouse if they have no income is tried and tested and as for mortgage lenders not liking it, it's first time I've heard of that and I've been in mortgages for over 20 years.

If the spouse wasn't employed then the profits of the business would be higher. Depending upon the level of incomes we are talking about there is some leverage if income is classed as 'employed' as opposed to 'self employed' as higher LTV's will be available.

These are the types of client I like to walk away from as they are constantly looking for ways to beat the system.

 

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