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Where Taxpayers and Advisers Meet

Mrs - The Tax /NI Heaven!!!

hyderaly
Posts:1
Joined:Wed Aug 06, 2008 3:45 pm

Postby hyderaly » Fri Nov 10, 2006 4:49 pm

A friend of mine has decided to go crafty. I, being an accountant myself, want to tell him to stay away from it. But I canÂ’t pin point the legislation he is falling fowl of. Please help!!!

Before I delve in the issue, remember the HMRC definition of employees (those subject to Class 1A NIC) and employers (those responsible for Class1B NIC).

Here is the issue. Mr X, employed with Y Ltd, intends to declare part time self employment with Mrs X as the only employee. Supposing his self-employment makes a little income, but pays considerable salary to Mrs X, his business goes into Loss, and he intends to claim tax relief for it. Mr X is not planning for overkill here so I am sure he shall be able to avoid tickling taxman/woman's fancy.

But then he intends to use the same self-employment to secure Mrs X SMP. The business is a home based business and it will be difficult to prove whether Mrs X is actually putting in the hours or not.

Please help by highlighting where Mr X is falling foul of the law so that I can persuade him to stay away from such scheme.

Thank you in advance.

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Sat Nov 11, 2006 4:03 am

If HMRC decide to enquire into Mr X's return, which he must file if he wants to benefit from the loss, then I am sure that he will fall foul (but if he's hen pecked then I suppose it could be fowl), of S74 (wholly & exclusively) in as much that it would probably be self evident to any open minded HMRC inspector that Mrs X seems to be getting more out of the business than Mr X would pay any independant third party employee. Unless its all verbal (and interviewing Mrs X might make it obvious what had happened anyway if HMRC manage to break some of his records). Then when the remuneration is disallowed the PAYE won't be repayable so he will get hit for a double tax charge and NIC. Of course HMRC might just be up to realising that he's also conspiring to give Mrs X a false NIC credit for doing not much more than hen pecking her husband.

Ok maybe this will give you some ammunition and of course if he does it in an amount below tax & NI levels then of course it hardly worth all the effort and sleepless nights he might have waitign on the knock on the door in relation to some other simple matter.
bill@wamstaxltd.com
http://www.wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

al_eebee
Posts:899
Joined:Wed Aug 06, 2008 3:40 pm

Postby al_eebee » Sun Nov 12, 2006 4:41 am

Look at TA s384 and ask yourself is "the trade was being carried on on a commercial basis and with a view to the realisation of profits in the trade".

The answer is almost certainly no, so there will be no right to set off of the loss against his general income, which rather blows half his intended benefit out of the water.

It is self assessment. Do you do his returns, and are you comfortable advising a claim to the loss relief in his return knowing what you know?

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Sun Nov 12, 2006 6:21 am

Tax Evasion is a crime and wouldn't an accountant require to make a report to NCIS under the proceeds of crime legislation (without telling your friend at risk of your own livelihood) if you were not discussing things with him by way of making a full disclosure to HMRC. Print it off and let him see what a predicament he is placing you in.
regards
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites


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