I have a sole trader client who has done rather better than expected in 13/14 and I have just prepared his tax return and he is shocked to learn that not only has he got tax to pay for 13/14 of 6000 but also 3000 on account for 14/15. He will struggle to pay this in one lump.
He is wondering if there is any way round softening the blow of this immediate tax bill or spreading the liability?
The crudest thing to do would be to pay a bit now in January, then say accept the 5% fine for not paying the balance by February 28th, then pay some more in the middle of the year and cop another 5% for any balance still remaining etc...
Or can he try to involve his wife a bit more. At the moment she already does some admin work like accounts, appointments, phone calls etc but he only paid her about 3500 for this during the 13/14 tax year.
My understanding is for payments to family to be allowable they must have actually been paid out during the tax year. Is that correct?
Or can he make a retrospective bonus payment or something like that after year end? Are there any time limits on this?
The obvious thing would have been for him to have set up a Partnership originally but he didn't do that. Can this be done retrospectively or is it only something you can set up as from now?
Any advice that might help here would be great
Replies (9)
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The advantages of ...
Ah - the advantages of not waiting till ten minutes before your tax payment's due before you work out what you owe !!
Yes - you can form a partnership now, form a company now. Both of those will reduce his 2014/15 tax and entitle you to consider whether to reduce his POAs. Or just increasing the wife's wages will have a similar effect.
Not much you can do about last year but it's worth noting that the 5% surcharge (equivalent to a wonga.com 65% pa) is only payable on the 2013/14 tax, not the POA. Any late payment will, of course, carry interest.
A general p-ship
Is a question of fact (so it could have been in existence previously). There should be no settlement or s809AZA issues with this.
In fact
Yes, but in fact it was not in existence previously. There is no evidence of existence previously. In fact, there is probably a lot of evidence against its existence (sole name on bank account and sales invoices, payments to wife recorded as wages, not registered at HMRC, etc, etc) Is a question of fact (so it could have been in existence previously).
It will work going forward, but trying to rewrite history is always inadvisable.
Bank Account
Agree with stepurhan. In whose name is the bank account ?
Short of rewriting history, this is a non-starter.
In fact
Second hand evidence is not entirely reliable, so it is always best to ask the client what they think the position is.
Yes
But don't put words in their mouth. Best to hand them a folded slip of paper as you ask the question for them to read before they answer. You only need to write one word on it.Second hand evidence is not entirely reliable, so it is always best to ask the client what they think the position is.
Not entirely reliable
But the OP is already aware what the client thinks the position is. The client thinks the position is that they are a sole trader that has been paying their wife for doing some admin. Second hand evidence is not entirely reliable, so it is always best to ask the client what they think the position is.
You say second-hand evidence is not entirely reliable. I cannot help thinking that a client who has been told they will save a load of tax if they had been a partnership may not be "entirely reliable" when they say that yes of course they thought that all along. I also cannot help thinking that if ALL the second hand evidence points to the contrary then that assertion will be dismissed by any court or tribunal it is presented to.
Telling
Second hand evidence is not entirely reliable, so it is always best to ask the client what they think the position is.
"I have a sole trader client ......" is fairly clear cut. Not much room for ambiguity there.
Time to Pay Arrangement
If you reach a "time to pay arrangement" with HMRC before the end of February (and keep to it!) the 5% surcharge will not apply.