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Sam, Accountant
Category: Tax
Satisfied Customers: 14200
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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There, I have been a sole trader last 3 years.

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Hi There,
I have been a sole trader for the last 3 years. I would now like my partner(fiancee) to become part of the business. We live together.
For the last year she has been handling all accounts, emails and finalizing all our reports which takes up to a good 25 hours + per week on her side
The expected turnover for the business will be between £44000 - £48000 per year(gross) Obviously we would like to take advantage of her tax free allowance (she does not work anywhere else and she also takes care of our toddler on most days, while answering emails, finalizing reports etc.
What recommendations can you make and what are the advantages and disadvantages of these?
Hi Thanks for your question You can either pay her a wage to reflect the true cost of what she undertakes for you and either keep this below the tax and NI threshold (which would mean paying her £8060 a year - so no payroll would need running - or paying her up to the personal allowance which would mean up to £10,600 but National Insurance would be due on the amount between £8060 and £10600.Just keep the rate you pay her a reasonable rate - Thats the easiest and most cost effective route OR make her a partner - but then you have two tax returns plus the partnership return to complete each year which is additional admin time and accountancy costs (if you have an accountant acting for you) whereas the payroll costs are very low (all of course are allowable business expenses)But then you can only attribute a percentage of the profit to reflect the business trade. So whilst HMRC recognise that in any business the admin side of matters play a vital role in the running of business - clearly its probably on a ratio of 20/80 so you could really only attribute that percentage of profits to her role as she profits support rather than an equal workload Let me know if you wish me to expand on either suggestion further ThanksSam
Customer: replied 2 years ago.
Hi Sam,Thanks for that.Could I in effect pay her as self employed - she has currently registered herself as self employed with HMRC, and she would responsible for her own taxes and NIC or would it be better as PAYE? And what sort of NIC contribution is necessary
No she cannot be a sole trader self employed - she is either your employee or a partner -
and that's due to employment status legislation which looks how she performs those duties and there is a master/servant relationship (sorry I know that seems very archaic in this day and age) but without your trade/business she would not have a role
So it has to be either employee - or you change the legal structure of the business to being her in as a partner
Tax and National Insurance is almost the same for each.
As an employee she can earn £10600 before being liable to tax and only income over £8060 sees her liable to national Insurance Class 1 (12% on anything over £8060 to the higher rate limit which is just over £31,000) - but then there is also Employer Class 1 to consider which costs you (the business) 13.8% on anything over £8060 (or £156.01 a week)
But all of these are allowable deductions from the business profits
Then if she became a partner in the business for tax and National Insurance purposes she would be treated as self employed (but cannot be an independent self employed individual - its juts the treatment of each partner in a partnership is the same as sole traders) she would pay Class 2 National insurance (monthly or quarterly) £2.80 a week
Then for profits the first £8060 is NI free and then 9% of anything in excess of this figure.
The tax position for her being a partner are the same as being an employee -
Do let me know if I can assist furtehr but it would be appreciated if you could rate (or click accept) for the level of service I have provided.
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