Do I need to disclose a tax avoidance scheme?

Do I need to disclose a tax avoidance scheme?

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One of my clients receives a great deal of help from his wife. He has several jobs and a couple of self employments which put him into the 40% band. Until now he has never paid his wife anything even though she used quite a bit of her time and petrol running about for him, arranging appointments, doing the books etc. I advised her to register a self employment and invoice him for her time spent on his business which brings the client back into basic rate. I see this as nothing more than de facto recognition of what is happening in real life. Now that we are obliged to reveal tax avoidance schemes I wonder if this is the kind of thing which would be covered by the rule. I'd welcome input from colleagues. All the best and thanks in advance - John

Replies (21)

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By neileg
28th Aug 2013 15:02

Mmm...

Doesn't sound like self employment to me.

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Teignmouth
By Paul Scholes
28th Aug 2013 15:16

No it's not an avoidance scheme

Hopefully employing someone never will be!

As neileg says however I'd be dubious about justifying his wife's duties as self employment.  In the vast majority of such arrangements the role is an employed one.

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By Vaughan Blake1
28th Aug 2013 16:07

Why not make her a partner?

The wife could then get a sensible profit share taking account of her efforts.

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Replying to emanresu:
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By TaxMatters
29th Aug 2013 17:29

she could only be a partner in the self employment which would not bring her a great deal. I was thinking about employment but there is the additional cost of NI and the expenses she can claim fall away. If I can get a self employment through that would be the optimal course.

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RLI
By lionofludesch
28th Aug 2013 17:02

Tax Planning in Arrears

Tax planning in arrears is never a great idea. Bite the bullet and either make her a partner or employee from now on if that's the road that the client wants to follow.  But it's not a tax avoidance scheme in the sense of filling boxes in on the Tax Return.

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RLI
By lionofludesch
29th Aug 2013 17:50

Just wondering .....

.... why the partnership is not good but the self employment is ?  Are you trying to create a loss for the husband to set against his employment income or summat ?

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Replying to lionofludesch:
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By TaxMatters
29th Aug 2013 18:03

the husband has about 7 employments but only two low level self employments. In sum he is a 40% tax payer whilst his wife has lots of room in the 20% band. Passing his income from employments over to her is not feasible so she will have to be employed or self employed.

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RLI
By lionofludesch
29th Aug 2013 18:55

Maximum Income

Oh I agree that the maximum you can pass is the whole of the self employed income. But I don't understand why she needs to be self employed on her own account to do that.

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By neileg
30th Aug 2013 16:16

Now totally confused

If the bulk of his income is from employment, how are you going to get a deduction for her wages or her fees if she is self employed? What you seem to be suggesting is that by paying her, his taxable employment income is reduced. That's a good trick if you can do it. Higher rate tax payers will beat a track to your door (including me).

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By TaxMatters
30th Aug 2013 18:18

Create a loss in his self employment and set it against his other income in the year. Am I missing something here?

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Replying to johnt27:
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By neileg
02nd Sep 2013 09:39

I think you may be

TaxMatters wrote:

Create a loss in his self employment and set it against his other income in the year. Am I missing something here?

I can't see HMRC accepting that creating a loss with wife's wages is a legitimate commercial situation.
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RLI
By lionofludesch
30th Aug 2013 18:39

Good luck ...

.... with that if HMRC choose to enquire.

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RLI
By lionofludesch
02nd Sep 2013 10:53

Especially ....

..... if she's never been paid before.

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By mydoghasfleas
02nd Sep 2013 12:30

Employment and tests

If she is running about for him, arranging appointments, doing the books etc, it appears she is more likely to be an employee.  HMRC look at wife's wages for actual payment rather than book entry and the payment is commensurate with the work done at market rates.

Then there are the two self employments both generating low profits.  Is there anything to be gained from her self employment or a partnership?  If the profits are low and then a salary creates losses are they commercial?

On the DOTA front, paying a salary for work done would not be notifiable, otherwise each P45 or P46 would entail notification.

Self employment might reduce the 40% charge or create a loss but watch for Class 2 and 4 offsetting any benefit, plus a tax return because there is self assessment.

Partnership, is it really worth it when there are two businesses.  No loss possibility in either, class 2 and class 4 possible, 2 partnership returns and an extra tax return could well wipe out the benefit.

 

 

 

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RLI
By lionofludesch
02nd Sep 2013 13:00

Back dating

What particularly concerns me is that you seem to be changing history (correct me if I've inferred incorrectly).  She doesn't seem to have had an income until you realized her husband had strayed into the higher rate.  If you're just talking about the future - that's a different matter, obviously.

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Replying to Duggimon:
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By TaxMatters
02nd Sep 2013 20:21

back dating

lionofludesch wrote:

What particularly concerns me is that you seem to be changing history (correct me if I've inferred incorrectly).  She doesn't seem to have had an income until you realized her husband had strayed into the higher rate.  If you're just talking about the future - that's a different matter, obviously.

This is in fact de facto what has been happening for the past few years. The difficulty in demonstrating it is that they have a joint account so it is one of those left pocket right pocket scenarios. You are right about the objective though - clearly it is to pull him back down out of the 40% band and it should be arguable that she is paid for her services even if she was not in the past. Might be better if she had her own bank account though.  I welcome the input from all - thanks
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By John - Horler Tax
02nd Sep 2013 17:07

Watch the NIC regs

My understanding is that these will deem her to be an employee.

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By ijaz77
03rd Sep 2013 09:24

@TaxMatters, I don't wanna be somebody turned up in the middle of a movie, but just wondering... have you thought about putting all of his eggs in to one basket. since he has 7 jobs & 2 self-employments, can he not put everything under a company. I reckon its a pretty contestable case of IR35 rules in case HMRC objects. As you are aware, depending on the nature of his profession, his 7 (part-time) employers might allow him to raise invoices rather than wasting time processing payroll report, paying NI (empr contri) and catching up his Tax Codes.  On the other hand, company can deal with all sorts of his businesses and can either employ his wife or make another shareholder (with a mix of salary & dividends). This way optimising expense claims and only 20% corp tax, no personal taxes for both and lots of administrative time saving..... ?

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By ijaz77
03rd Sep 2013 09:30

And answer to your basic query ..... If he operates on de facto basis, i.e; paying his wife for actual expenses . that is not a scheme as there is no simple option that would generate extra tax therefore nothing to disclose.

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RLI
By lionofludesch
03rd Sep 2013 09:40

Number

If you report a tax avoidance scheme, don't you need a scheme number ? (Damn - saw Mr Probiz at the match on Wednesday - I could've asked him).

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7om
By Tom 7000
10th Sep 2013 14:27

ijaz77 has the answer

incorporate the business split the shares 50/50 give both of them 7800 a year salaries...save about 4k a year in tax put accounts fees up 750 and charge em 300 for the company

 

win win

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