A client started self employment in January 2003. He didn't complete any tax returns and I've just completed and submitted his returns for 02-03 through to 04-05.
Included in his allowable expenses was an amount for his wife's wages . She was paid above the LEL but below the primary threshold. Is it necessary to belatedly set up a PAYE scheme and submit returns in respect of this? Assuming his wife is prepared to forgo pension entitlements as she was only employed by him for about 18 months does the PAYE scheme still have to be set up.
Grateful for any advice.
Regards
Juliet
Juliet Wilson
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Interesting Question
I too have often wondered about this.
From my reading of the Legislation, one is only required to inform HMRC when a liability arises. I can find no requirement to notify when one takes on an emplyee for the first time.
I raised this a few years ago face-to-face with an expert from HMRC PAYE training division and the Officer was certain that they had to be informed when a new employee was taken on. I pointed out that there was no Stautory requirement to do this and she said she would check and contact me very soon with the answer.That was two or three years ago and I have still not heard from her!
To answer your question, if the wife is prepared to forgo pension entitlements, it would seem that you only have to set up a formal PAYE scheme when a PAYE/NIC liability arises.
Does anyone else have any definitive facts on this matter?
In reply
Hi
I agree there is no requirement to notify HMRC unless thresholds are reached. However for a wife/partner we always recommend that a PAYE scheme be set up, payslips are issued and actual payment is made and seen to be made to the wife/partnrt from the business and that the remuneration is comparative with duties.
By doing this HMRC have a difficult time challenging the authenticity of the expense. I have had inspectors challenging clients wages for wifes/partners on the grounds that the wages paid where in their opinion over the top. I have yet to see where they get this belief from since I do not know if any tax case since Copeman v Flood has addressed this issue since.
Cheers
Neil@DeMason