Top Tax Tip 1 for Sole Traders
It is coming around to Self Assessment Tax Return deadline.
I am therefore starting a series of tax tips for Sole Traders. Today's is the first, more are to follow:
Employing Family Members in your Business.
As a sole trader, there are probably many parts of your business that you would love to hand over to someone else. For example right now you are probably battling with getting 2010-11 bookkeeping in order to get to the accountant to do the tax return. Quite likely, this is the least valuable work you could be doing right now. Bookkeeping is admin and admin is not generally well paid in business. If you weren't doing admin, you could be delivering your service or even better marketing and sales. What if you employed your spouse or even one of your children to do this work? If that spouse or child is not earning, you could save the family around £1,500 in tax.
How is this possible? Well let us say you pay them for a day's work each week at say £140/day. If this is their only income they will earn £7,280 which happens to be just under the tax threshold. The £7,280 then shows up as an expense reducing your profit by the same amount. The tax you would pay on £7,280 as a lower rate tax earner is £1,456. Hence the tax bill is reduced by that amountIf you do decide to do this, some words of warning:
They must genuinely do the work. Otherwise it is fraud!
They must genuinely get paid - i.e, there is a payment into their bank account.
You need to set up a PAYE scheme which requires some administration. In most cases the working arrangements would not fall under Self Employed status.