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Are HMRC likely to challenge salary to family memb

Are HMRC likely to challenge a salary paid to a family member

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Client wants to pay his daughter aged 18 a basic salary of 8,600 from his Limited Company. The salary will be paid to her and she will use it to help with University costs etc.

Similar situation that arises alot with small Limited Companies where a spouse is employed on a salary at the NI Primary Threshold level; although it is claimed that the spouse helps with marketing, administration and general support, in reality I'm sure not alot of genuine work is actually done to earn the salary.

I don't feel comfortable with the idea but wonder if anyone has any thoughts or suggestions

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03rd Apr 2019 10:24

You're right to feel uncomfortable. You should be adding back this salary as not for the purposes of the trade.

Will HMRC challenge it ? Unlikely to find out, I'd say.

But that, nevertheless, doesn't absolve you from your own obligations.

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03rd Apr 2019 10:26

If she isn't working for, or otherwise enriching the prospects of the company, then the "salary" fails the W&E test and is not deductible for CT purposes, so what's the point?

I'd say it's wide open to challenge both from a CT perspective and income shifting.

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03rd Apr 2019 10:36

Sounds like evasion to me.

The rational on "spouses salaries" with a small ltd co set up is a payment for the post of directorship which carries genuine responsibilities.

Id not be that surprised to see HMRC try to hit those in due course as it is a somewhat smelly arrangement. it only takes a quiet news day (we can hope) and an MP doing this and it will move from "good tax planning" to "bad tax avoidance" in the blink of an eye!

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03rd Apr 2019 11:23

It's not a question of "Are HMRC likely to challenge ...". In self-assessment the tax payer makes the return on the basis that he can justify as correct within the law.

You don't say in as many words, but if you are suggesting that the daughter does zero work for the business - or at least nowhere near £8,600 worth - then your starting point is no tax deduction.

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03rd Apr 2019 12:23

Deleted.

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to Kaylee100
03rd Apr 2019 12:15

You are putting words into the mouth of the OP. That was never suggested in the question.

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to paulwakefield1
03rd Apr 2019 12:24

Its how I read it. Apologies. I have deleted.

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03rd Apr 2019 13:38

Are the duties commensurate with the salary? Always ask this of clients who come up with this wizard wheeze for wife, mother, children or cat.

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03rd Apr 2019 13:50

The figure quoted would equate to around 30 hours a week at the age appropriate minimum wage or 22 hours at the full NMW. This does not seem plausible for a university student (even these days).

The usual argument is that this particular family member is worth more than the market rate as they can be called upon for unsociable hours and are somewhat on call. Perhaps they are even studying something relevant at Uni?

I have never quite understood how the same firms who refuse to allow deductions for mileage without a log, or claims without receipts seem to have no problem whatsoever with these arrangements so long as the formalities are observed - payroll, payslip & actual payment.

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05th Apr 2019 09:56

https://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06293.html
Nicholson v HMRC
Income tax - appeal against closure notice - whether payments to son as wages whist at university were deductible as an expense wholly and exclusively incurred for the purposes of trade - on the facts no - whether HMRC amendments correct - yes - appeal dismissed - amendments confirmed

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