Payroll Query

shaxxa

My client who is self employed pays his wife £200 a month for general admin duties.
As she is under the LEL, no NI has to be paid. There are no expenses and benefits paid to her either.
The Employer Helpline tell me that they do not have to do anything, is this correct?
My way of thinking is, surely she would have to declare her earnings somewhere, but technically in HMRC eyes she is employed (ESM4155)?
Does she need to fill in a P46?
And if this is the case, will my client have to submit year end returns, albeit a nil return?
I've not come across this scenario before so any advice would be appreciated?

Thanks in advance.

Sharon:001_unsure:

payrollpro

Payroll Query

Sharon,

You have described a clear cut employment situation. Yes there are rules which allow an employer to make a single payment, under the weekly lower earnings limit, and below the persons tax threshold without any tax or nic considerations nor having to complete an end of year P14 etc.

As soon as the employer makes a second payment or pays above the thresholds and limits then the full payroll duties come into force.

The employer does have to consider the employment rights issues as well. It may be a family member but this does not mean they can escape rights and responsibilities.

I am assuming your client is a sole trader, but nevertheless he is making payments regularly, yes she ought to complete a P46 and no matter what the Employers Helpline says what happens if actually BR tax applies? You have to account for this and make the appropriate returns.

I cannot see any other way of dealing with it.

Ian Whyteside

shaxxa

Thanks Ian,
Yes he is a sole trader.
I'll advise my client accordingly and send him a P46. I'm pretty sure that he is likely to keep everything under the lower earnings limit in order to avoid the year end returns.

Sharon

Dean

Is the £200 per month actually for doing admin duties or is it your client saying trying to say "oh I pay my wife £200 a month to try and reduce my tax" in which case you could approach it that the payment is actually his own drawings.

Regards

Dean

shaxxa

No balance sheet Dean!
Just a tax return required in this instance.

Dean

Doesn't really matter if there is a balance sheet or not. It sounds like it is a small sole trader who thinks he should pay his wife to do duties for which he will still benefit from the money i.e they are not really 'wages' as such. All i'm saying is that if you treat it as his own drawings he will not have to register as an employer and have that administration burden to worry about.

Regards

Dean

shaxxa

I think this goes back to my original question and maybe I did not explain myself very well.
Perhaps I've got myself confused as essentially he 's just self employed.
As everything is below the LEL, does he have to register as an employer?
I've sent him a P46 and have asked him to file it until such time his wife's earnings go over the threshold.
Am I correct in thinking there is no administrative burden unless the threshold is reached?

peugeot

The way I understand this to work (bear in mind my involvement with payroll is quite a long time ago!) is:

You have to register as an employer when you have taken someone on and:

• their earnings are equal to or above the PAYE threshold.
• as above but their earnings are equal to or above the LEL for NICs
• the employee has another job (i.e. their allowance is used at their other job so they will pay BR tax on your clients job)
• or if they receive benefits

That's my understanding of it. However, I have to advise you that in the past I have seen HMRC disallow deductions for wages which have not gone through the proper payroll routine - these cases are, however, where the client cannot demonstrate that the wages have been paid to another person and cannot demonstrate the need for that other person's duties.

Kind regards
Steve

shaxxa

Thanks Steve.
That is my understanding too, and I have already warned my client that he may have to prove to HMRC that his wife does actually do this admin work for him and that it's not just another way to reduce his tax bill!:glare:

Sharon

payrollpro

Payroll query

Sharon,

Oh what a tangled web, eh.

There is a lot of merit in what everyone of us is saying and i think this demonstrates just how hard it is to pin down the right process to follow in individual cases.

Dean is absolutely correct to throw the "income shifting" question into the pot because, as you point out, hmrc may at some point ask for evidence that she is in fact working. In reality though for £200 a month this, i feel, is unlikely to happen.

We come back to the payroll question. It is obviously true that his wife is being paid under the NIC lower earnings limit and hence, generally, there would be no requirement to start a P11 working sheet and, hence, no need to produce year end returns P14 and P60.

However, this is not my issue, it is the taxation which could cause a problem. If she is a standard basic rate taxpayer with no other income then this £200 a month is also under the tax threshold and hence you could argue that no P11 is needed here either. Two things sink that option though, firstly unless she completes a P46 you dont know what other issues are lurking in the back ground so she may even be a D0 case (i.e. all pay taxed at 40%) because of substantial income elsewhere, or she may be a BR for similar reasons.

This changes the income tax threshold for your client from £100 a week to, potentially, zero. Obviously as soon as tax is due then a P11 has to be started.

The other issue is the tax rule on "casual" employees. This makes it very clear that only a single payment in a tax year which is under the threshold for tax and nic can be ignored for P11 and reporting purposes. As soon as a second payment is made, whether over the threshold or not, the employer needs to consider starting the P11 and may lead to a year end report.

My view is that a P46 has to be sought in order to legitimise the tax position because without it the rule is that BR applies.

Ian Whyteside

shaxxa

Thanks to all for replying, this topic has certainly highlighted some other considerations.

Ian, many thanks for your concise reply!


Kind regards
Sharon

Poodle

Hi

I agree with Ian regarding the tax issue and registering as where there is no signature on a P46 then BR applies and that requires registering.

I had this very question this week with HMR&C, same circumstances as Sharon i.e wife getting a minimum wage under the LEL and a few casuals usually U16 years of age, week end pocket money in a small shop.

I understand that you do not need to register for PAYE if you pay under the LEL and BR does not apply however you have to have the P46's on file for 'everyone' that you pay.



But apart from that why is he not paying her just over the LEL. He gets an allowable business expense and she gets a full qualifying year for pension and other benefits?

They could register with HMR&C to only send in an annual return for PAYE and then you as their agent could process the P35 online and get the incentive payment for them as well.

I advised and registered my client and gave him a pile of P46 forms.

Poodle