Salary to a relative
Discussion
I'm a newly qualified GP. I was discussing the possibility of paying a large ish salary to my wife from my limited company
Let's say my work falls outside of IR35
Let's say the Limited company makes 100k and I pay my wife 50k and me 50k. She has no other income
Is there a problem with this set up?
Granted, she won't be doing much actual work for the company but I want to pay her a salary nonetheless
Colleagues are saying HMRC are "clamping down" on large salaries to relatives. I cannot see the problem myself as long as all relevant taxes have been paid
Let's say my work falls outside of IR35
Let's say the Limited company makes 100k and I pay my wife 50k and me 50k. She has no other income
Is there a problem with this set up?
Granted, she won't be doing much actual work for the company but I want to pay her a salary nonetheless
Colleagues are saying HMRC are "clamping down" on large salaries to relatives. I cannot see the problem myself as long as all relevant taxes have been paid
Typically HMRC will want to see commensurate work being done in return for a salary as otherwise it's a clear example of income shifting. So putting her on the payroll is risky unless she is actually doing a reasonable amount of work for the salary received.
However (and as confirmed by the Arctic Systems case) there is no issue with issuing dividends to shareholders. So if you issue say Class A shares to you and Class B shares to her, you are generally OK to declare a dividend to either share class as you see fit.
However (and as confirmed by the Arctic Systems case) there is no issue with issuing dividends to shareholders. So if you issue say Class A shares to you and Class B shares to her, you are generally OK to declare a dividend to either share class as you see fit.
I'm not middle class - I cannot afford to strike
My favourite quote from all this strike hysteria was one gastro reg who won MasterChef saying she didn't even know what the salary would be on qualifying from medical school. She just wanted to help people. I guess it helped that her dad is/was a gastro consultant
My favourite quote from all this strike hysteria was one gastro reg who won MasterChef saying she didn't even know what the salary would be on qualifying from medical school. She just wanted to help people. I guess it helped that her dad is/was a gastro consultant
HMRC has always been wary of salaries to spouses or other family members. On the whole, they have been generally unsuccessful in blocking such transactions as there is a general principle that HMRC has no power to dictate to a business what it thinks "reasonable" salaries are for specific jobs.
HMRC lost the Arctic Systems case (almost 20 years ago) because the principle of "income splitting" that they tried repeatedly to apply was rejected a number of times by various courts - all the way to the House of Lords (now the Supreme Court).
Having said that, I would be wary about paying somebody an impressive salary for doing virtually nothing.
HMRC lost the Arctic Systems case (almost 20 years ago) because the principle of "income splitting" that they tried repeatedly to apply was rejected a number of times by various courts - all the way to the House of Lords (now the Supreme Court).
Having said that, I would be wary about paying somebody an impressive salary for doing virtually nothing.
super7 said:
Give her a Salary of the £12,500 to take advantage of the 0% tax bracket, then pay Dividends for the rest. Although Dividends are getting more tricky now as well....
This!I would do the same with your salary too. This legally optimises the taxable income that you jointly bring into the household from the company.
super7 said:
Make your Wife the company secretary. Make her do all the Admin 
Give her a Salary of the £12,500 to take advantage of the 0% tax bracket, then pay Dividends for the rest. Although Dividends are getting more tricky now as well....
With a salary of £12,570 (don't forget the extra £70.00 Give her a Salary of the £12,500 to take advantage of the 0% tax bracket, then pay Dividends for the rest. Although Dividends are getting more tricky now as well....
) she will not be liable to Income Tax (unless she has other income from other sources. However, she will be liable to Class 1Employee's NI and the employer (i.e. the company she is working for) will have to pay Employer's NI as well.Eric Mc said:
With a salary of £12,570 (don't forget the extra £70.00 ) she will not be liable to Income Tax (unless she has other income from other sources. However, she will be liable to Class 1Employee's NI and the employer (i.e. the company she is working for) will have to pay Employer's NI as well.
The Ee's NI threshold is aligned with the personal allowance now though? I would have said that they could have claimed Employment Allowance to cover the Er's NI too, but IIRC working within the public sector (NHS) prevents this, in which case salary to the Er's NI threshold (£9100) plus divis is the way to go. ) she will not be liable to Income Tax (unless she has other income from other sources. However, she will be liable to Class 1Employee's NI and the employer (i.e. the company she is working for) will have to pay Employer's NI as well.Eric Mc said:
Having said that, I would be wary about paying somebody an impressive salary for doing virtually nothing.
I'm willing to play guinea pig...Are GPs always directors of limited companies? I'd have thought they were employees of the NHS.
I thought it was amusing that just as radiographers - all struggling on minimum wage no doubt - went on strike for more money, it was revealed that AI does an equally good job. That's saved the taxpayer a few quid then
I'm a GP locum for now while I find my feet
Aim is to locum across at least ten, if not twenty, practices and find what I like. Then apply for a salaried role in 12 months or so.
Salaried role would be working for the practice which is an independent contractor doing NHS work. At that point I can opt into the NHS pension. You cannot opt into pension as a locum doing work through a limited company.
The partners at a practice operate differently. Maybe Eric can say more on that or someone else who might know
Aim is to locum across at least ten, if not twenty, practices and find what I like. Then apply for a salaried role in 12 months or so.
Salaried role would be working for the practice which is an independent contractor doing NHS work. At that point I can opt into the NHS pension. You cannot opt into pension as a locum doing work through a limited company.
The partners at a practice operate differently. Maybe Eric can say more on that or someone else who might know
Eric Mc said:
With a salary of £12,570 (don't forget the extra £70.00 ) she will not be liable to Income Tax (unless she has other income from other sources. However, she will be liable to Class 1Employee's NI and the employer (i.e. the company she is working for) will have to pay Employer's NI as well.
Op, this route also means that your wife would add a qualifying year each year to her state pension calculation which might come in useful later in life. ) she will not be liable to Income Tax (unless she has other income from other sources. However, she will be liable to Class 1Employee's NI and the employer (i.e. the company she is working for) will have to pay Employer's NI as well.Eric Mc said:
HMRC has always been wary of salaries to spouses or other family members.
My dad paid my mum a salary for years and she had no idea. One day she saw a letter from HMRC addressed to her, on his desk, and called them up in a state trying to figure out what was going on. They asked to speak to me dad, and cheerfully told him this happens more often than you would guess, and wished him a good day!Gassing Station | Business | Top of Page | What's New | My Stuff