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Sole trader to husband and wife partnership

Sole trader to husband and wife partnership

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A new client has come to me as a sole trader commercial window cleaning business for 2018/19. His wife's only income for 2018/19 was a very small amount of self-employed freelance work with a turnover below the £1k trader allowance (previously in full time employment for earlier tax years). His wife did work with him on one of his contracts throughout the year although wages were not specifically recorded. Funds have been transferred to their joint personal account (not specifically for her wages, but a combined transfer of earnings/profits) so I think that we can justify a £5k salary to use at least part of her wasted PA without the need for a PAYE scheme (not in place). Overall profits are £30k and his wife has also assisted with invoicing and bookkeeping.

Ideally this would be set up as a partnership although, if done for 2018/19, it would be a late registration etc. and, as the paperwork (bank, invoices, letterheads, insurance) makes no reference to her name (sales invoices are in a trading name only i.e. not Mr X T/As but just the business name but the bank account is in the husbands name only) or a partnership I don't see this as possible - correct?

All that said, they have been working in this business together with profits transferred to a joint account. Is there are justification to treat this as a partnership from 06/04/19 onwards or should it only be from the point that a partnership set up intention is documented?

As a husband and wife operation at what point does the business become a genuine partnership for HMRC purposes? 

 

Replies (6)

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RLI
By lionofludesch
17th Nov 2019 13:18

It's when they decided to be a partnership - which may be in the past or the future, based on the vague facts you give.

You'll just have to make enquiries. When did they decide to work together as partners, sharing profits, whether equally or not ?

Just because it's not documented doesn't mean it didn't happen but it does mean it'll be more difficult to prove in the event of a dispute.

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Replying to lionofludesch:
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By CWservices6064
17th Nov 2019 15:22

By way of an update:

The client has provided a 2018 insurance email exchange when his wife started to work alongside him which clearly states that the policy details would not need to change unless this was a partnership................the client did not act on this so clearly no partnership but justifiable wages.......

Thanks for you input.

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RLI
By lionofludesch
17th Nov 2019 15:37

Then the date the insurance is transferred to joint names is, more than likely, the date of commencement of the partnership.

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Replying to lionofludesch:
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By CWservices6064
17th Nov 2019 15:39

Yes, unfortunately this will be Monday 18 November 2019.

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By CJaneH
17th Nov 2019 17:51

Do not forget to register wife for Class 2 NI. If share of profit above £6,365 then class 2 is due. If less then her state pension can be protected for £3.00 per week. A bargain.

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