Any salary paid will be subject to Income Tax and National Insurance as well as having to comply with National Minimum Wage and Auto Enrolment.
But you can only use the cost as a business tax deduction if:
- Its ‘wholly and exclusively’ for the benefit of the business
- The payment must reflect the actual work done and be realistic
- The payment must be shown in the accounts
- The wages must actually be paid
- If you provide for wages they must be paid within 9 months of the end of the accounting period
Mark McLaughlin explains more in this video and tells about a recent case involving a Heating Engineer and his wife. Mark is a brilliant tax writer and I have already order his next book ‘Tax Planning 2017/18’
The rules don’t only cover spouses, they also cover other family members.
There are many other pitfalls relating to other ways to share income such as dividends.
The s660 rules (or settlements legislation) have been around since the 1930s.
The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)
From the 1st October 2015 the new National Minimum Wages (NMW) will come into force
||21 and over
||18 to 20
|2015 (from 1 October)
|2014 (current rate)
With a further increase in April 2016 for over 25’s to £7.20 per hour. The April 2016 wage will be called the Living Wage.
Penalties for non compliance are already harsh and as reported by the BBC on 1st September 2015 they are getting tougher…
These include doubling penalties for non-payment and disqualifying employers from being a company director for up to 15 years.
The government also announced plans to double the enforcement budget for non-payment and to set up a new team in HMRC to pursue criminal prosecutions for employers who deliberately do not pay workers the wage they are due.
Penalties for non-payment will be doubled, from 100% of arrears owed to 200%, although these will be halved if paid within 14 days. The maximum penalty will remain £20,000 per worker.
Are you paying enough?
On the 3rd April, to coincide with the 15th anniversary of the introduction of National Minimum Wage, HMRC issued a list of the worst and most elborate excuses given to their officers in the last 12 months.
- An employer said a woman on the premises was not entitled to NMW as she was his wife. When asked what his wife’s name was the employer said “err.. her name, err what’s your name love?..”
- An employer told HMRC: “I don’t think my workers know anything about the NMW because they don’t speak English.”
- Another employer told HMRC: “When the NMW goes up I do increase the amount I pay a little, even if the total pay is still below the NMW. I don’t think its right to ignore the rises in NMW.”
- A number of employers were paying rates below NMW, suggesting that accommodation they provided workers made up for their shortfall in wages.
- Upon inspection an employer told HMRC: “I know I am paying them too little, but they are happy to work for this amount because they are getting experience.”
- An employee claimed to be just working for a few days with a view to buying the business. When HMRC checked food safety records, the employee’s name was found on historic food temperature records.
- An employer claimed they realised they were not paying employees NMW and had just this week increased their wages… to an hourly rate which was still below the minimum wage.
- An employer told HMRC: “It wasn’t a conscious decision to say ‘I’m not going to pay this’, but I’ve never really considered doing it because I’ve not had people come to me and say, ‘I’m not getting paid enough’ or ‘Is this the minimum wage?’”
- An employee ran out of the premises when HMRC officers arrived to check for NMW infringements. The same employee then returned – minus the work pinafore – pretending to be a customer.
- Another employee claimed to be a friend of the owner and only in the restaurant as they were in the area. HMRC officers returned another day to find the person in the kitchen preparing food.
Jennie Granger, Director General of Enforcement and Compliance, HMRC, said:
Most employers are honest and pay their staff the correct rate. But this research shows that some still view the National Minimum Wage as a choice and will even try these crazy excuses to avoid paying workers what they are due.
Last year, HMRC’s investigations resulted in over 26,000 people getting a share of £4 million in back pay. HMRC investigate all complaints of employers failing to pay minimum wage. We will take action to recover back pay for employees and fine employers who are not playing by the rules.
HMRC officers work hard across the UK to ensure that everyone is paid at least the National Minimum Wage, and anyone who isn’t should call us.