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Can Wife Be Sued For Husband's Bad Work?

Any Reasons Not To Take Wife On As a Partner In Husband's Self Employment

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Husband has a sole trade which has been going for a year and a half now (since around 6 April 2018) making profits in excess of his personal tax allowance.

He is now desperate to get his tax bill as low as possible, especially since he has so far spent all of his profits and 2018/19 has come and gone without him making any legitimate attempt to reduce his 2018/19 tax bill (I.e. by using his wife's unused personal allowance and Class 4 exemption).

His wife has had low earnings from her own ongoing self employment, but from April 2019 his wife started working (unpaid) for husband's sole trade as well as carrying on her own meagre self employment.

I suggested that since they genuinely work together on the husband's sole trade that he should think of making her a partner, which is probably the easiest/cheapest way to get profits over to her.

The other alterative is to pay his wife a wage below the relevant NIC threshold, but the fact she has already got her own self employment seems to mean that he would have to open a PAYE scheme irrespective of how little wage he pays her.

I am tempted to encourage forming a husband-wife partnership without a formal partnership agreement, because that seems to be the most flexible and cheapest way to move forward.

But I then asked husband if he is likely to be sued. He said it looks like he may have two actions against him for "bad work" during the last year and a half.

My question is, if he were to take his wife on as a partner half way through this 2019/20 tax year, say on 6 October 2019 (i.e. today), is there any way the wife could be sued for his past bad work.

In any event, they both have no real assets. The house is mortgaged up to the hilt.

Replies (45)

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By Sandnickel
06th Oct 2019 07:46

Yes the wife can be sued if she is a partner.

I'm not sure why you think you would need a paye scheme though. Self employment does not impact employment. Unless she opts to have her tax coded out she would be on the normal 1250l, surely?

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Replying to Sandnickel:
By penelope pitstop
06th Oct 2019 14:18

What I meant was, can wife as partner from today be sued for husband's "shoddy work" done in the past.

In general, I think there is some legal limitation of liability for a new partner for existing partners' misdemeanours which have occurred in the past. But I am not au fait with the legal aspects in this connection.

Having spoken with husband and wife (they are quite young), I get the distinct feeling they are spending all as it is earned. I also get the impression that they cannot be bothered with paperwork and bookkeeping etc. The idea was to either form a simple partnership to divert some profits to wife OR treat her as an employee below the NIC threshold. But the problem is that wife's existing meagre self employment forces husband to operate a PAYE scheme were he to pay her a wage.

And I just know that he/they will certainly not be bothered with dealing with any PAYE scheme.

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Replying to penelope pitstop:
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By Sandnickel
06th Oct 2019 14:36

I'm not sure about the limitation of liability but the fact that they are married means she would be affected by being sued anyway. What's his is hers?

I'm still not convinced that you need a paye scheme though. Her self employed income does not impact employment, it only affects her sar (because her pa will be used in the job).

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By Thomas654654
06th Oct 2019 08:45

Even if a PAYE scheme was required that seems to me to be much easier than turning it into a partnership with an SA800 to do along with other responsibilities she would have such as the one you mentioned

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By Tim Vane
06th Oct 2019 09:38

Sledgehammer, meet nut.

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By zebaa
06th Oct 2019 10:20

If - big if - you go this route think Ltd partnership. As it happens I like Ltd and too often I see failures which come out of the blue and then crush a sole trader or unlimited partnership financially, personally.

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By Glenn Martin
06th Oct 2019 13:22

If whatever he does leads him to be risk of been sued surely the limited liability of a Ltd Co should trump the tax options.

They sound like super star clients. I often wonder why people who don't past the bleep bleep test insist on becoming self employed these 2 sound better off employed.

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Replying to Glennzy:
By penelope pitstop
06th Oct 2019 14:26

I think they are the sort of young couple who need to learn fast. As it is, they seem to be enjoying life to the full without realising they have fiscal responsibilities. But I reckon that by 31 January 2020 they should expect a big wake up call.

When I sat down with them the other day I mentioned they could not even think of becoming limited unless they had at least £1,000 pa earmarked for accountancy fees etc. and also were in a position to start keeping decent (or even half decent) records.

Unfortunately, despite asking them to go elsewhere, they keep on "knocking on my door" wanting me and only me to be their accountant. They did go to see another accountant, but then they got cold feet and came back to me begging to help them.

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Replying to penelope pitstop:
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By chicken farmer
06th Oct 2019 17:26

The other accountant obviously quoted a higher fee! I would revise my quote even higher. If they are spending all they are earning you will struggle to get paid, if at all.

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Replying to penelope pitstop:
RLI
By lionofludesch
06th Oct 2019 17:40

penelope pitstop wrote:

Unfortunately, despite asking them to go elsewhere, they keep on "knocking on my door" wanting me and only me to be their accountant.

You're too cheap then.

If you want to get rid of them (and it sounds like you do), keep putting up your prices and asking for payment up front.

Or just say no.

It sounds like there'll come a point where they won't pay you. I'd guess that'll be around February 2020 when the taxmen pop round to collect their money.

Regarding your question about being sued, no, the wife can't be sued for work done prior to her admission as a partner but they will be affected as a family so that's probably of little comfort.

But if the husband is doing some shoddy work and thinks he may be sued, maybe a limited company is the way forward, no matter what the compliuance costs.

Tbh, I'd get rid. Just refuse to do the work. Tell them that you have no confidence in them as clients because they're taking no gorm of the advice you give them.

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Replying to lionofludesch:
By penelope pitstop
06th Oct 2019 17:50

Very helpful.

Thanks.

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Replying to penelope pitstop:
RLI
By lionofludesch
06th Oct 2019 18:01

Just following through the foreseeable consequences of the tale you tell.

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By Duggimon
07th Oct 2019 10:37

Ignoring the other points, you are definitely mistaken about the PAYE scheme, her self employment does not automatically mean one is required, wages paid below the LEL do not need to be reported under RTI unless there is already a scheme in place or she has other employment elsewhere, other income doesn't come into it.

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Replying to Duggimon:
By penelope pitstop
07th Oct 2019 12:01

I really do hope I am wrong about the PAYE scheme. But the HMRC website says:

"You do not need to register for PAYE if none of your employees are paid £118 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records."

So, what is a "job". I have always taken "job" in this context to include all other employments and self employments. I think if you look at the dictionary, the word "job" possibly does include self employments. But I would love to be corrected on this because it would be so easy if I could get the wife to be paid a wage of £117.99 per week and not have to open a PAYE scheme, and at the same time have her pre-existing meagre self employment.

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Replying to penelope pitstop:
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By Matrix
07th Oct 2019 15:00

Job means PAYE job so that PAYE can be operated correctly. So of course it does not include self-employment.

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Replying to Matrix:
By penelope pitstop
07th Oct 2019 15:52

Thanks for your considered response. I can fully understand the logic of your response.

However, and I am sorry to be a dimwit here, and it would be marvellous if you are correct, but

Collins English Dictionary: Job = (2) An occupation
Collins English Dictionary: Occupation = (1) A person's regular work or profession; job

But the definition of "job" is different in The Concise Oxford Dictionary. Job = (2) a paid position of employment.

So, the English language use of "job", according to Collins, does include what we would have previously understood to be the old Schedule D trade and profession, i.e. self employment.

So, if you are correct, which you may be (and I hope you are), by what PAYE rule/definition does "job" only refer to (paid) employment.

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Replying to penelope pitstop:
RLI
By lionofludesch
07th Oct 2019 17:06

You're overthinking, Penny.

Just think "Exit client now."

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Replying to lionofludesch:
By penelope pitstop
07th Oct 2019 17:11

Yes, but it would be good to know for the sake of other clients!

Thanks

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Replying to penelope pitstop:
RLI
By lionofludesch
07th Oct 2019 17:36

There was a thread about this on the forum not so long ago.

I'm not good at using the search facility, I'm afraid.

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Replying to lionofludesch:
By penelope pitstop
07th Oct 2019 22:49

Hello.
Yes, I have found this question. It was originally posted 26.11.15 by KH under the theme "Is self-employment "another job" for PAYE".
I do not think his question was answered properly.
Have also found the HMRC rules about when to open a PAYE scheme at PAYE20001. These rules are simply explained, but I still find them unhelpful to the original point of does self employment constitute "another job".
I have sent KH a message to keep him in the loop.
He too, like me, appears to be an "overthinker".
Thanks

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Replying to penelope pitstop:
RLI
By lionofludesch
08th Oct 2019 08:09

penelope pitstop wrote:

Hello.
Yes, I have found this question. It was originally posted 26.11.15 by KH under the theme "Is self-employment "another job" for PAYE".
I do not think his question was answered properly.
Have also found the HMRC rules about when to open a PAYE scheme at PAYE20001. These rules are simply explained, but I still find them unhelpful to the original point of does self employment constitute "another job".
I have sent KH a message to keep him in the loop.
He too, like me, appears to be an "overthinker".
Thanks

No, that wasn't it. It was this year.

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Replying to penelope pitstop:
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By whitevanman
08th Oct 2019 13:45

I believe you (and KH before you) have already had the correct answer from several contributors to the question of "job".
I understand also that you would like something more definitive than their words of wisdom, say an entry in HMRC manuals or something similar.
Like the gold Ferrari someone keeps mentioning, it isn't going to happen. I don't believe it exists.
So, you could ring HMRC and ask them. Good luck with that as the people there are unlikely to have anything other than what you have read (that assumes you get through). Or, you could accept the views of your peers.
With that in mind, can I offer my version (no reason why you will accept it).
If a person had 10 employments (potentially) within PAYE (lets call them jobs) and each paid £100 per week, no employer would deduct tax etc and HMRC would never know any better. The purpose of the particular rule therefore, is to address that problem.
Trite to say but, income from "jobs" is taxed under PAYE whereas income from self-employment is taxed under SA.
There are different due dates for tax charged under each regime. In general terms, PAYE is deducted on payment whereas tax under SA is paid in instalments somewhat later.
The reason for the reference to "other job(s)" is to ensure that PAYE can be correctly applied to sources within the scheme. If a person has a job earning £100 per week, there is nothing to pay and no need for PAYE to be operated, but if (s)he gets a second job, also earning £100 per week, things change. HMRC will usually deal with this by the coding system so that the correct amount of tax overall, is charged (theory).
If they were to reflect a self-employment in this way, ignoring any practical issues, they would in effect be taxing the self-employment through PAYE and tax would be paid early. Bear in mind that where someone has both an employment and a self-employment, allowances etc can be used as (s) he chooses and the tax can thereby be paid at the latest appropriate time.
So, when you consider these (and other similar) issues, it should be fairly clear that the reference to a "job" means an employment and not a self-employment.

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Replying to whitevanman:
RLI
By lionofludesch
08th Oct 2019 13:56

whitevanman wrote:

So, when you consider these (and other similar) issues, it should be fairly clear that the reference to a "job" means an employment and not a self-employment.

Sounds plausible.

So, why don't HMRC say "employment" instead of "job" ? It'd nail the debate immediately.

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Replying to lionofludesch:
By penelope pitstop
08th Oct 2019 14:00

EXACTLY!

GET IT NAILED, HMRC!

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Replying to penelope pitstop:
RLI
By lionofludesch
08th Oct 2019 14:04

Hate to say it but the obvious inference is that HMRC reckon that "job" is different to "employment".

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Replying to whitevanman:
By penelope pitstop
08th Oct 2019 14:13

Brilliant. Thanks for that very common sense answer.

But just remember that HMRC and tax rules are not based on common sense!

I think I may have been persuaded by your reasoning for the time being (all of your comments have already passed through my mind).

My only reservation is all of those historic tax cases which have turned on an ordinary "dictionary definition".

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Replying to penelope pitstop:
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By whitevanman
08th Oct 2019 14:21

I think the answer to both you and lion is that the guidance is not legislation and is probably written using the English language somewhat loosely.
They could indeed have said "employment" but you would then have quite rightly asked whether that includes "self-employment", a much more unclear position IMHO.
In the absence of any evidence to the contrary, I would always assume that something specific to PAYE does not include self-employment (or CGT, or anything else). If HMRC want to make something of it, we can all point out that they should make their guidance clear.

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Replying to whitevanman:
RLI
By lionofludesch
08th Oct 2019 14:10

whitevanman wrote:

I believe you (and KH before you) have already had the correct answer from several contributors to the question of "job".

I'm not sure KH got much of an answer.

OGA gave him the benefit of his advice, got the monk on when asked for a reference to some authority in law and basically ended up saying "Well, it's obvious, innit?"

I wouldn't have thought it'd stand up at a Tribunal.

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Replying to whitevanman:
By penelope pitstop
08th Oct 2019 14:22

A contrarian view is that "job" means both employment and self employment.

Whereas HMRC may "turn a blind eye" to someone who has only they one employment paid at £117.99 per week or less, HMRC may want some PAYE formality for someone who has both an employment and a trade or profession.

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Replying to penelope pitstop:
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By legerman
07th Oct 2019 17:33

penelope pitstop wrote:

I really do hope I am wrong about the PAYE scheme. But the HMRC website says:

"You do not need to register for PAYE if none of your employees are paid £118 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records."

So, what is a "job". I have always taken "job" in this context to include all other employments and self employments. I think if you look at the dictionary, the word "job" possibly does include self employments. But I would love to be corrected on this because it would be so easy if I could get the wife to be paid a wage of £117.99 per week and not have to open a PAYE scheme, and at the same time have her pre-existing meagre self employment.

If wife is an employee she will need to be on at least minimum wage, so would only be able to work approx 14 hours a week.

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Replying to legerman:
RLI
By lionofludesch
07th Oct 2019 17:38

legerman wrote:
<

If wife is an employee she will need to be on at least minimum wage, so would only be able to work approx 14 hours a week.

Why's that ?

There's no such requirement for a live-in wife.

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Replying to lionofludesch:
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By sosleepy
08th Oct 2019 11:22

lionofludesch wrote:

legerman wrote: <

If wife is an employee she will need to be on at least minimum wage, so would only be able to work approx 14 hours a week.

Why's that ?

There's no such requirement for a live-in wife.

Live-in wife is my favourite phrase of the year so far. I'm going to use it at every available opportunity.

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Replying to sosleepy:
RLI
By lionofludesch
08th Oct 2019 12:33

sosleepy wrote:

Live-in wife is my favourite phrase of the year so far. I'm going to use it at every available opportunity.

As opposed to wife living in at your house with the kids while you live in a pokey bedsit.

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By Justin Bryant
08th Oct 2019 13:41

How on earth can a general partner be sued before the general partnership exists (so it's impossible for her to even hold herself out as a partner)?

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Replying to Justin Bryant:
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By lionofludesch
08th Oct 2019 13:54

Justin Bryant wrote:

How on earth can a general partner be sued before the general partnership exists (so it's impossible for her to even hold herself out as a partner)?

As the French say, exactement.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
08th Oct 2019 15:24

Justin Bryant wrote:

How on earth can a general partner be sued before the general partnership exists (so it's impossible for her to even hold herself out as a partner)?


No-one (unless previous posts have been edited) was suggesting that the wife be sued before the partnership exists.
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Replying to Wilson Philips:
RLI
By lionofludesch
08th Oct 2019 15:35

Wilson Philips wrote:

No-one (unless previous posts have been edited) was suggesting that the wife be sued before the partnership exists.

Yes, they were.

"My question is, if he were to take his wife on as a partner half way through this 2019/20 tax year, say on 6 October 2019 (i.e. today), is there any way the wife could be sued for his past bad work."

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Oct 2019 15:56

Being sued, after the partnership has been created, for past bad work is not the same as being sued before the partnership exists.

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Replying to Wilson Philips:
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By Tax Dragon
08th Oct 2019 15:36

I thought Ms Pitstop's worry was that the wife could be sued once the partnership existed in relation to events that happened previously.

Suppose there was debt that arose on P-Day minus 5. Sole trader has not paid it before P-Day. Is wife jointly and severally liable, from P-Day, for the debt?

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Replying to Tax Dragon:
RLI
By lionofludesch
08th Oct 2019 15:46

I vote no.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
08th Oct 2019 16:02

That is exactly how I read it.

It's a legal question, so I don't know the answer. From a layperson's point of view, though, I would say it would depend on how the partnership was created and documented. Presumably the sole trader's capital account would be reflected by net assets transferred into the partnership. If those net assets include liabilities then are those liabilities not then debts of the partnership? But I'm just thinking aloud - it really needs the input of a partnership lawyer.

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By David Scott
09th Oct 2019 10:52

Why not just keep it simple. The wife has her own business at the moment, so she could invoice the husband's business for her services. No NMW/NLW, PAYE and other employment matters.
No liability if it existed for previous problems, (or in the future)

But also consider the limited company option especially if there is a possibility of future claims

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By petestar1969
09th Oct 2019 11:06

You don't need a PAYE scheme, just have the wife invoice the sole trade of husband for "consultancy" or "admin support", or something similar. She already has one sole trade herself so should already be filing SATR's, so it won't be an issue.

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By pauljohnston
09th Oct 2019 11:11

I suggest that if you want these as clients consider an LLP since there are no over drawn director account problems.

You should expect to have to do all the work bookeeping etc. So quote £165 per month plus VAT, if less than 12 months to tax payment time the calculation this year is £165 plus VAT x 12/ number of months until tax payment date. From Februray the fee can go down.

Tell them take it or buzz off. Use QB or zero and bank feed and receiptbank. Check monthly that they are doing what ever. If they are not threaten to stop acting and that you will be retaining payments to date to cover costs etc

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By David Gordon FCCA
10th Oct 2019 12:50

Sadly I am no longer surprised at the lack of general financial, legal, and business knowledge shown through some of the posts on Accounting.
Assuming this post is genuine:
For an accountant in practice not to know, in depth, about partnership joint and several liability is unacceptable.
About the wife not being sued:
It is nothing to do with her being "Wife".
There is Joint and Several liability. Except and unless there is a carefully executed, witnessed, partnership deed clearly setting out that the new partner is not responsible for anything prior to date of becoming a partner. Many a young accountant and or solicitor has been caught out this way.
She should also have a separate personal bank account.
About fees, new "New" clients are like pet dogs, train 'em young to avoid a mess on your carpet.

On a different tack;
Penelope you are correct about low paid workers, but I have suffered a Catch-22 situation. If the client uses a number of these persons, then, to avoid possible future correspondence with HMRC it is often better just to put them into a PAYE scheme in order to maintain a verifiable records. Such persons are entitled to payslips, however produced.

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