Sole Trader/Partner Tax

Davidbyworth

Hi All

Situation......a sole trader is working and is over the higher rate of tax and looks likely to continue this going forward. His wife works 2 days a week so is well within the basis rate. She does some work for him, would it be beneficial and legit for her to become a partner 50/50. Therefore splitting the profits of the business?

MarieNoelle

I believe it is, see https://www.gov.uk/hmrc-internal-manuals/partnership-manual/pm10500

Spouses and civil partners can enter into partnership with each other. Sometimes this is done for tax planning reasons as it may be advantageous for a person to share their business profits with his or her spouse to maximise the use of their personal allowances and basic rate tax bands. HMRC is unlikely to challenge such an arrangement. See BIM82065 for further guidance.

And also https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim82065