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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a sole trader. administrative work that my wife

Customer Question

I am a sole trader. For the administrative work that my wife does, I pay her £7120 per annum (2015-16).
At this level of payment, would there be any NI liabilities for the employee or the employer? Would it be allowable to make an employer contribution to her pension fund, without the employee making any contribution for the tax year?
Would I be able to claim tax relief on the contribution, against my income?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.


There would be no NC or tax to pay assuming the salary was paid at equal levels each month. Take a look here for the current rates and thresholds.

If you don't have a PAYE scheme set up, you really ought to get one as there can be penalties for non-compliance. You can find out how to do that here and here. There are many inexpensive payroll softwares, some costing as little as £100 per annum.

As an employer, you can pay a pension contribution for your employee and get tax relief. There are some notes on the new rules for workplace pensions here. You wouldn't need to go through the automatic enrolment process as your employee doesn't earn at least £10,000 per year.

You might consider taking your wife on as a partner in the business which will help you escape from having to operate a payroll scheme. You could set her profit share at whatever level you liked.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Thank you very much for the detailed answer.

If I take on my wife as a partner and then pay the profit share (£7120) and then make a contribution of £6000 to her pension fund, will I be able to claim the tax relief (I would prefer that as I would get a 40% relief).

Expert:  TonyTax replied 2 years ago.
I'll get back to you on that.
Expert:  TonyTax replied 2 years ago.
If you are partners in a partnership,you are each effectively self-employed. Any money paid into a pension plan for your wife would be drawings by her and not a deductible expense. She would be entitled to basic rate tax relief on up to 100% of her earnings contributed to a pension plan.

A £6,000 net pension contribution would gross up to £7,500 with 20% tax relief being given at source.

If you would get 40% tax relief if you employed your wife, then that me be the better route but you then have all the compliance responsiobilities I mentioned in my earlier answer.