Director's Wives and RTI

Natsmomma

I have a new client who is a Director of a Company. A portion of his salary (£500) is paid each month to his wife, for tax reasons. This has been a recognised thing for many years and is very common.

The wife took on a part time job 2 years ago and has been paid £91/week in cash for 38 weeks/year. Technically she has been slightly over the tax threshold but because of the cash payment for the part time salary, it has not been recorded. Neither has any tax return been done nor tax paid on her behalf.

With RTI now, the wife's part time employer needs to process her £91/week through PAYE. The £500 salary from the husband's company stopped in March 2013 so going forwards there will be no tax liability.

My client is wondering if HMRC will work backwards on this and request tax returns for the last 3 years or so. They are happy to do so if required, but what would others suggest they do, please?

There must be many others in the same boat......

Many thanks

Rozzi Rainbow

It is up to the employer to operate PAYE properly. Was her first job working for her husband's company? In which case your client hasn't done anything wrong. When she took on the second job, they should have asked her to complete a P46 where she should have ticked Box C "I have another job" enabling them to deduct BR tax. This is the second employer's error if they didn't do that as they haven't followed procedures properly.

I doubt HMRC would suddenly decide to work backwards on this, as just because they know she is earning £91/week this tax year, it's no indication that she was doing that in previous years. Especially if her employment with her husband's company has now ceased. And in any case, it would be the second employer they would investigate first, if they thought they hadn't operated PAYE correctly.

However, I believe it is up to each individual to declare to HMRC any income they believe hasn't been fully taxed. I don't know whether there is any concession available for her not hiding any information and the second employer not doing things properly.

These are just my random thoughts on this, not advice I'm expecting you to give your client, you'll probably want to wait for someone else to come along to confirm things.

Natsmomma

Thank you for your reply. It sounds very sensible to me and I will bear your thoughts in mind.

I suspect that the second employer has not requested a P46 and that is where any issue will lie. I think my client's wife should be prepared for a possible bill and see what happens.