The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
‘Independent taxation’ means that husbands and wives, and civil partners, are treated as independent from one another in respect of:
income tax bands
making and filing tax returns
payment of income tax, and
The tax treatment of members of civil partnerships is aligned with that of married couples in all respects and in this note, the term ‘spouse’ is used to refer to a husband, wife or civil partner.
This guidance considers a number of potential tax savings ideas and potential pitfalls in relation to spouses of business owners.
It makes sense to pay sufficient remuneration to family members to utilise their personal allowances and basic rate tax bands.
An individual can transfer 10% of his or her personal allowance to his or her spouse / civil partner. The transferee then receives a tax reduction of 20% of the amount transferred. In order to make the transfer, both parties must not be higher rate or additional rate taxpayers. Therefore, this is only likely to be of benefit where one of the couple is not able to utilise the full personal allowance. See the Transferable tax allowance guidance note for more details.
As with all expenditure, remuneration paid to a spouse of a proprietor or director must be paid wholly and exclusively for the purpose of the trade in order for it to be an allowable deduction from trading profits. See the Wholly and exclusively and Allowable deductions for employee-related expenses guidance notes for further information.
Specific HMRC guidance on remuneration paid to relatives and close friends is available at BIM47105. HMRC considers that where there is a non-trading purpose for the level of remuneration or it is determined based on the relationship with the director / owner then the wholly and exclusively test is not satisfied.
Where remuneration paid to a relative or close friend is in excess of that
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