Paying yourself and spouse wages....

[northernladuk]

Can we not argue the same and ask what work does one do for his own limited to account for the £624 / pm salary and how is it attributed as market rate?

If one is saying they are earning revenue for the Ltd through a gig that is worth several hundred a day, then £624 a month is not market rate for it is it?

This question deviates from the OP's question, but just asking to get the views of accountants (and of course NLUK)...

There is nothing wrong with doing more work and under paying yourself in our model. The problem comes when the work you do doesn't justify the pay. It's not about market rate as I can see. It is about paying someone for work not done to gain a tax advantage which has long be championed by the MP's.

[Nathan SJD Accountancy]

Can we not argue the same and ask what work does one do for his own limited to account for the £624 / pm salary and how is it attributed as market rate?

If one is saying they are earning revenue for the Ltd through a gig that is worth several hundred a day, then £624 a month is not market rate for it is it?

This question deviates from the OP's question, but just asking to get the views of accountants (and of course NLUK)...

Hmmm... I hold the opinion that a Director can pay whatever they like as a salary.

Regarding additional salaries to a spouse for work done etc. I think that it is really for the Director / shareholder to justify in their own mind their reasoning behind the salary level. From my perspective, as an accountant, trying to minimise tax etc, it is pretty basic tax planning for Contractors and many other Owner Managed Businesses to make use of the allowances that they have available to them from HMRC. One of the most common being, paying a salary to a spouse and or dividends utilising their tax brackets.

[Craig at Nixon Williams]

Can we not argue the same and ask what work does one do for his own limited to account for the £624 / pm salary and how is it attributed as market rate?

If one is saying they are earning revenue for the Ltd through a gig that is worth several hundred a day, then £624 a month is not market rate for it is it?

This question deviates from the OP's question, but just asking to get the views of accountants (and of course NLUK)...

Remember that if you were a permanent employee, the employer would probably be making a tasty profit because of the work that you do!

HMRC could however have a problem with you paying a family member a salary which is higher than you would pay an unrelated party to do the same work. A good test of that would be to consider whether you would offer me or anybody else on this forum £624 to do a couple of hours of book-keeping...if you wouldn’t be willing to do that then you shouldn’t make the same offer to a family member!


Hope this helps!

Craig

[northernladuk]

Hmmm... I hold the opinion that a Director can pay whatever they like as a salary.

Regarding additional salaries to a spouse for work done etc. I think that it is really for the Director / shareholder to justify in their own mind their reasoning behind the salary level. From my perspective, as an accountant, trying to minimise tax etc, it is pretty basic tax planning for Contractors and many other Owner Managed Businesses to make use of the allowances that they have available to them from HMRC. One of the most common being, paying a salary to a spouse and or dividends utilising their tax brackets.

But this is the key line. Paying a salary to spouse or have her working for the company. Can be two very different things. If someone requested this option and made it clear to you she didn't do anything, or next to nothing for the company. What would be your advice? To pay her the salary cause it saves you tax?

Edit: As I wrote this Craig provided the feedback I would expect from my accountant.

[Bluebird]

For the current tax year (2012/13) you need to do monthly or quarterly notifications. This can be done on the following link and takes a few seconds.

HM Revenue & Customs: No PAYE/NICs payment due

It lets HMRC know that they should not expect a payment from your company for PAYE/NIC.

For 2013/14 (6 April 2013 onwards), the RTI submissions each month will let HMRC know what is or in your case, what is not due.

Thanks Nathan, apparently I'm on an Annual return so don't need to make one til Qtr4....

As you say from April I'll use RTI each month when I pay salary.

[Nathan SJD Accountancy]

But this is the key line. Paying a salary to spouse or have her working for the company. Can be two very different things. If someone requested this option and made it clear to you she didn't do anything, or next to nothing for the company. What would be your advice? To pay her the salary cause it saves you tax?

Edit: As I wrote this Craig provided the feedback I would expect from my accountant.

My advice would be to suggest that she should do something for the company because you can't pay someone a salary simply because it saves you tax.

[Craig at Nixon Williams]

My advice would be to suggest that she should do something for the company because you can't pay someone a salary simply because it saves you tax.

Our advice would differ from this, rather than just have her 'do something', I would suggest that the amount of salary paid should represent the amount of work done and the level of skill needed to perform the work.

If you advertised a salary of £624 for a couple of hours admin, I would expect you to have your hand bitten off!

Craig

[Nathan SJD Accountancy]

Our advice would differ from this, rather than just have her 'do something', I would suggest that the amount of salary paid should represent the amount of work done and the level of skill needed to perform the work.

If you advertised a salary of £624 for a couple of hours admin, I would expect you to have your hand bitten off!

Craig

I agree with you, the fact that I stated 'do something' shouldn't take away the detail of what I would say in a conversation verbally or via e-mail. What I stated was just a quick reply in relation to working for the company.

The reason for a salary level and how it is justified etc is always debatable.

[Wanderer]

I would suggest that the amount of salary paid should represent the amount of work done and the level of skill needed to perform the work.

If you advertised a salary of £624 for a couple of hours admin, I would expect you to have your hand bitten off!

Ahh, but the spouses of directors do so much more than just a few hours of admin! And our esteemed MPs point out that employing family members offers great value for money. As for the question of paying the same amount of money to a non-connected person, there are a multitude of services that a family member working in a family business can offer that some person off the street wouldn't be trusted to do.

I don't pay my spouse but I can see why people do and how the potential for abuse is high. I do get the feeling that people do get away with it if they have a proper justification though.

Is this not so? Or would the people who know rather keep their heads below the parapet for fear of their clients abusing the system and attracting negative attention for all parties....

[ASB]

I am sure the accountants have a number of clients where there is a couple in the position described.

Has an inspecter ever raised comment?

Have they accepted that the wages paid to the partner are genuine - reluctantly or otherwise?

Another thought is whilst it may only be a couple of hour a week at most and "worth" 10 pound an hour, could you actually get anybody to do it for that? Factor in travelling time, costs etc would anybody be interested?

You would be trying to find somebody to add another couple of hours to their workload, perhaps potential applicants are on benefits. Then it almost certainly wouldn't be worth it for them. It might not give somebody the 18 hours a week they need for WFTC and all that sort of stuff.

I think the situation is such that a payment that is not "market rate" could probably be fairly easily justified - simply because the position a number of people are in would make it very difficult to ascertain what a fair market rate actually would be.

The key is surely that the payment should be commercially justifiable, that is a different thing to market rate.