Wifes Wages

Wifes Wages

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I have had an Inland Revenue meeting today and they have queried the wifes wages.
The wife does all of the book keeping work for the client, together with answering telephones etc, this turns into around 1 day per week. The inspector has acknowledged that the work is done, however will not allow the cost (£2,800) due to the wages amount not being paid to the wife specifically as wages. The client does however pay in excess of this from his bank account into her personal account for housekeeping expenses.

this appears to be very harsh to me, and is only because the client didnt enter them into his cash book as wages, but as drawings instead.

Any advise greatly appreciated.

Thanks
richard paton

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By User deleted
18th Mar 2008 15:39

Similar situation
These comments have been useful to me as I am facing a related situation in an enquiry. Although cash wages (to a son) have been recorded in the cashbook, the amounts vary wildly depending on how much spare cash was available. Although the total is only £3000 in the year some weeks he would have got £700 with no PAYE deductions. It is a seasonal business, so I am hoping it will be OK when we get to the meeting. They have a bee in their bonnet about wages paid to family members, which maybe is fair enough if nothing is done, but if work has been done the wages must be allowable.

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By User deleted
17th Mar 2008 22:17

Wife's Wages
We've recently been the subject of a full tax enquiry - and one of the arguments we had was about my wages: I do all the admin and accounts for my husband's Sole Trader business.

Firstly, there was 'no evidence' that I actually earned my wages, even though all the records, accounts, etc., were in my handwriting.

Then my wages were deemed to be 'excessive for work done' - a quick breakdown revealed that I'm actually working for £2.33 per hour.........

The final straw was when it was declared that I 'should not be contributing to household expenses'!!

This argument arose because in the Cash Book, I only posted 'Drawings' from the business bank account, then allocated some of those drawings to other expenses, such as Wages, Mortgage, Insurance, Private Car Road Tax, etc.,..........seemed a lot simpler to just put the funds straight into the 'household expenses' account (not a joint account) rather than some into my personal account then transferring the same amount into the household account - why should my husband pay for my personal expenditure, and why shouldn't I contribute to mortgage, insurances, etc., in joint names?

The point was argued with HMRC that I am entitled to have my wages paid to me in any way I want and that my wages are MY funds to do with what I like...........referring them to the employment pages EN1 and EN2 of the HMRC tax guide "that employees are treated as if receiving income on the earlier of (a) the date paid and (b) the date they became entitled to be paid even if they received no actual payment because they had arranged for the sum due to them to be applied in some other way instead."

We received the Closure Notice last week - 'No Adjustments to Return'.

Stick to your guns - if the wages have actually been earned, the funds belong to your client's wife: and it's her decision how she gets paid and what she does with the payment.

Good Luck

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By User deleted
13th Mar 2008 15:06

wife should report not being paid min wage.
Things have moved on since the stated case. The law is that a person must be paid the minimum wage. If the employer fails to do so the Inland revenue is the body to monitor situation. the inspector has agreed that the
duties have been performed so if he then contends that the wages have not been paid he has to advice the min wage section who will then demand that your client pays his wife !!!. Madness or what The next step is for your client to make an accrual for the wages not paid and then claim tax relief.

Join me at six for the Mad Hatters tea party and don't forget to invite this particular inspector.

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Euan's picture
By Euan MacLennan
13th Mar 2008 10:47

This is not new
If the client entered no wages in his records, it is hardly surprising that the Revenue is arguing the point. It has been good practice for many years to do as Frauke says and make separate cheque payments for the wife's wages, which are paid into a bank account in the wife's name (or, at least, into a joint account) and recorded as such in the client's cash book, preferably supported by a payslip and/or payroll record if he is paying another employee.

By all means, fight the case, but do tell the client (and all your other clients) to get it right in future.

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By frauke
13th Mar 2008 09:19

Fight!
As the other 2 before me has said - you should definately fight it.

I suggest you make sure you client issues monthly payslips to his wife, (keeping a copy in his records). The fact that he issues payslips are additional proof that he pays her.

When I started insisting all my clients did this a few years ago, I found they would actually pay the amount on the payslip, and then "top" of seperately for the housekeeping. The payslip, made it easier for them to do it without thinking about it.


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By mileswaterman
12th Mar 2008 19:29

fight this point
If the inspector has identified the fact that the task is being performed, turn the question around and ask what he feels is a fair wage for bookkeeping services.

You should at least get the minimum wage. So beforre you agree figures agree what a reasonable amount of time would be to perform the wifes duties. then suggest you allocate at least the minimum wage. assuming 8 hrs x 52 wks = 416 hrs @ £6.75 = £2808 hourly rate of £6.75 is very fair.

If they try to refuse then press that the fact that they have agreed that the wife performs the bookkeeping implies employment and as such the employment rules suggest at the very least minimum wage.

If the inspector says that the fact that houskeeping went into the book as drawings then perhaps the adjustment could bethat the wages amount should go in as accruals and pay the amount from the business account at the earliest opportunity.

If there is not much else wrong with the accounts I am confident that by pressing this fact you should have some success.

Good luck and let us know how you get on.

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By mikeyban
12th Mar 2008 19:19

Moschi v Kelly
The case the Inspector relies is Moschi v Kelly and unless the wage is paid it is not tax deductible......

I would agree with you should arguethat it is paid within the amount transferred and of course if you can proove the hours then the minimum wage requirements as policed by HMRC state that THEY MUST BE PAID.

Produce the timesheets to back up payment and the minimum wage requirements and stand your ground.

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By 1615308
04th Jun 2012 11:39

Wifes wages

I have been reading through the thread of responses about wifes wages and was wondering what the latest stance HMRC take with this issue as I have a client (husband wife team ) working as a sole trader. Husband is the 'front man', but I have clearly established that his wife is the bookkeeper, administrater and support within the business. No wages and so on have been paid to her, is there a trick being missed here?

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