Does HMRC object to putting family members on the payroll?
It’s said that more than half of small businesses in the UK are family-owned, mainly in the wholesale, real estate, construction and transport sectors.
They employ more than 12 million people and generate more than a quarter of UK GDP. In London, it is estimated that there are more than 800,000 family businesses.
Even if you are the single owner of your limited company or a sole proprietor, there may be situations where you need an extra pair of hands helping you with the running of your business. In most instances, you turn to your spouse or family members as you know you can trust them to help you out on short notice. As such, questions relating to ‘can you put family members on the payroll’ abound, which is why our payroll specialists at TaxAgility aim to explain the ins and outs of hiring family members.
If you're considering putting family members on the payroll, it's crucial to understand the rules, tax implications, and potential benefits.
Family ties are irrelevant
First of all, it must be explained that HMRC deems your family ties to be entirely irrelevant when it comes to who is placed on your payroll. You can definitely employ your spouse or any family members and put them on your payroll.
What HMRC is very much interested in is what your company gets out of the arrangement. In other words, the person who is being paid a wage appropriate to the job should actually be doing the job. There must be no special treatment paid to the family member through an inflated salary, reduced working hours, or anything that falls outside the ‘equal pay for equal value’ idea.
Unsure if you need to complete an SA100 Self Assessment tax return form? Checkout our full article that explains when you’ll likely need to complete an SA100.
Creating work for a family member
Many business owners incorrectly assume that they can only employ a family member within their company if they apply through the correct channels of communication for a job that is already available.
This isn’t the case at all. It’s entirely legal for you to create a job for your family member provided the work serves a necessary function in your company. For example, if you’ve been considering employing a receptionist for some time but haven’t got around to it, employing your spouse in this role would be perfectly acceptable. However, if you already have a receptionist who can currently handle their workload, to employ your spouse or any other family member as a second receptionist wouldn’t serve a necessary function in your company and could raise eyebrows at HMRC.
The same applies to employing your teenage son as your office cleaner, or your sister as an office administrator. So long as these extra bodies serve a necessary function, HMRC will have no issue with you employing them and placing them on your payroll, the same way you would any other employee in your company.
In general, the rules you must follow include:
- The work must be real and your family members must be paid commercially viable wages. You can’t get away by paying them £2 an hour to do bookkeeping nor £100 an hour to answer telephone calls.
- Payments must be made and records are kept.
- You (the employer) and them (the employees) must pay National Insurance contributions if they earn more than £166 a week.
- Obey child employment regulations if the family members involved are between 13-16-year-olds.
PAYE, NICs, and Payroll Requirements
When you employ family members, you must operate PAYE on their earnings, which includes deducting income tax and National Insurance contributions (NICs). However, there is an exception for family members who live in the family home and work for the family business – they are exempt from the national minimum wage. Those who don't live at home must be paid at least the national minimum wage.
- Lower Earnings Limit (LEL): £123 per week. Employees earning below this limit do not pay NI contributions but may still qualify for certain benefits, such as the state pension, through NI credits.
- Primary Threshold (PT): £242 per week. This is the point at which employees start to pay NI contributions. Earnings between £242 and £967 per week are subject to an 8% NI rate, while earnings above £967 are taxed at 2%.
- Secondary Threshold (ST) for Employers: £175 per week. Employers must pay NI contributions on earnings above this threshold at a rate of 13.8%
Don’t really understand your notice of coding letter or tax code? Here’s our article that explains all you need to know about your tax code.
Should you make your family members shareholders?
As tax on dividends is lower than on salary, you may consider making your spouse a shareholder and allowing them to receive dividend payments instead of salary.
Note that the Dividend Allowance - the tax-free dividend allowance has been reduced to £500 from 6 April 2024.
Here’s an example, assuming your spouse only receives £35,000 in dividend payments (no salary) in tax year 2023/24:
- The first £12,570 is tax-free (personal allowance)
- The first £500 of dividend is tax-free (director allowance)
- Dividends up to £37,500 are taxed at 8.75%
- This means the tax bill they are liable for is only £2,137.63
In comparison, if they receive £35,000 in salary in tax year 2023/24, then they are liable for £4,786.40 income tax (and £3,029.52 in National Insurance).
Staying Up-to-Date with Statutory Payments and Auto-Enrolment
As an employer, it's crucial to stay updated on changes to statutory payments. As of April 6, 2024, Statutory Sick Pay has increased to £116.75 per week, and from April, 2024, Statutory Maternity Pay, Paternity Pay, Shared Parental Pay, and Parental Bereavement Pay increased to £184.03 per week or 90% of your average weekly earnings, whichever is lower, for up to 39 weeks. Incorporate these updates into your payroll calculations to remain compliant.
Additionally, changes to the auto-enrolment earnings threshold are under review, which may affect family members earning below the current threshold. The review aims to include more employees, particularly from underpensioned groups, into workplace pension schemes.
Tax advantages
The salaries, commissions and bonuses you pay to your employees are tax-deductible expenses because they incur wholly and exclusively for the purposes of the business.
Here’s an example, assuming you hire your sister to do filing for £50 a week (£2,500 a year), you can offset this amount against your profit for income tax purposes. If you’ve done the work yourself, then you would be spending more time in the office while not enjoying the tax benefits.
Thinking about putting family members on the payroll?
If you’re a London-based business in need of further advice about putting family members on the payroll or other small business tax tips, contact TaxAgility’s small business accountants on 020 8108 0090, or get in touch with us via our contact page to arrange a complimentary no obligation meeting.
We’re London’s local accountants serving clients throughout the city with particular focus on Putney, Wimbledon, Fulham, Richmond, Hammersmith and Central London.
If you found this helpful, take a look at:
- Why outsource your payroll administration
- Payroll, pension and dynamic tax code changes April 2019
- HMRC Legal Powers
- How does HMRC expose tax evasion and avoidance?
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
How to Appeal to the Tax Tribunal
How SME Business Owners and Private Individuals Can Appeal HMRC Tax Decisions to the Tax Tribunal: Updated Guidance for 2024
We have updated this blog, originally written in 2015, about how small to medium-sized (SME) business owners and private individuals can appeal HMRC’s tax decisions against them. This blog aims to outline how to appeal to the tax tribunal if you disagree with HMRC’s response to your appeal review.
Overview of the Tax Tribunal
The tax tribunal is an independent body, separate from HMRC, that handles appeals against decisions related to both direct and indirect taxes. Direct tax issues include income tax, corporation tax, and PAYE tax. On the other hand, indirect tax issues encompass excise duty and VAT surcharge. This independence is crucial as it ensures that your case is judged fairly, without any bias from HMRC.
Direct Tax Issues
Before you can appeal direct tax decisions to the tax tribunal, HMRC must first conduct a review. If the review does not resolve the issue to your satisfaction, you can proceed to appeal to the tribunal. This process begins with notifying HMRC of your intention to appeal, after which they may offer an internal review of the decision. Should the review uphold the original decision, you can then take your appeal to the tribunal. It's essential to prepare thoroughly for this stage, gathering all necessary documentation and understanding the specifics of your case.
Your accountant can manage the appeal process on your behalf, although your presence will be required at the hearing. This ensures that you can personally clarify any points and provide firsthand evidence, making your case more robust. Having your accountant act as your representative can provide a strategic advantage, as they bring expert knowledge and experience to the proceedings.
Seized Goods
If your goods are seized by the UK Border Agency or HMRC, you can appeal this decision as well. This is particularly relevant for SME business owners who may face penalties as a result of such seizures. Similar to direct tax issues, you must first request a review of the decision to seize your goods before appealing to the tax tribunal. This step is crucial as it provides an opportunity to resolve the issue without going to tribunal, saving time and resources.
The review process involves HMRC reassessing their decision based on any new evidence or arguments you present. If the review does not change the outcome, you can then proceed to the tribunal. Preparing a comprehensive case with detailed evidence and clear arguments can significantly impact the success of your appeal.
Your Hearing
If your appeal leads to a hearing, you will receive fourteen days' notice of the date. The location of the hearing will be chosen based on its accessibility from your home or place of work. This consideration ensures that attending the hearing is as convenient as possible, reducing additional stress and logistical challenges.
During the hearing, it is essential to present your case clearly and concisely. You will have the opportunity to explain your position, present evidence, and respond to any questions from the tribunal panel. The more organized and well-prepared you are, the better your chances of a favourable outcome.
Who Will Attend
You may bring a representative, usually your accountant, along with an additional individual such as a family member or colleague. The hearing will include the tribunal panel, a tribunal clerk, a representative from the department or agency you are disputing (e.g., HMRC or the UK Border Agency), and any witnesses to the case. Having a supportive team can help alleviate some of the pressures of the hearing and provide emotional and strategic support.
What Should You Take
Bring as much relevant paperwork as possible to your hearing. This is crucial for presenting a strong case. Ensure you have:
The ‘statement of case’ document delivered by HMRC.
All documents and paperwork necessary to support your case. Consult with your accountant to determine what is needed; it is better to have too much documentation than too little.
Your written response to the statement of case, including a list of the documents and paperwork you will be presenting.
Typically, you, the business owner, will present your case first to the tribunal panel. Afterward, the representative from the agency you are disputing will present their side. The tribunal will then make a decision. This structured approach ensures that both sides have a fair opportunity to present their arguments and evidence.
Procedural Updates and Digital Submissions
Significant advancements have been made in digitising the appeals process. The introduction of the HMCTS Document Upload Centre allows for the submission of tribunal document bundles electronically, facilitating more efficient case management and reducing delays caused by traditional postal services. This digital advancement has been particularly beneficial for handling large document bundles that exceed email size restrictions, making the process more streamlined and accessible.
Changes in Handling Vulnerable Cases
In response to the complexities faced by families of individuals who lack mental capacity, there have been procedural updates to simplify access to tax tribunals. A streamlined process now allows families to handle cases involving small sums of money without the need for lengthy court proceedings. This change aims to balance accessibility with the necessary safeguards against financial abuse, ensuring that vulnerable individuals are protected while making the process less burdensome for their families.
First-Tier Tribunal Procedures
The First-Tier Tribunal is where most tax appeals begin and end, making it crucial to present a compelling case from the start. A typical hearing involves presenting evidence and witness testimonies, with both sides given the opportunity to cross-examine witnesses. Decisions can be reserved, with written judgments provided later. This process is designed to ensure a thorough and fair evaluation of all evidence presented.
Applicants can initiate proceedings by notifying the tribunal using an online form. While it is generally advisable to allow HMRC to conduct an internal review first, taxpayers can proceed directly to the tribunal if the review upholds the original decision. This dual-step process is designed to resolve disputes at the earliest possible stage, reserving tribunal hearings for more complex or contentious cases.
Costs and Appeals
There are no fees for filing an appeal in the First-Tier Tribunal, and each party bears its own legal costs. The tribunal does not usually award costs against the losing party unless there has been unreasonable behaviour or wasted costs. If a party disagrees with the tribunal’s decision, they can request permission to appeal to the Upper Tribunal, focusing on errors of law rather than factual disputes. This appeal must be lodged within 56 days of the decision, ensuring a timely resolution to disputes.
Losing Your Appeal
Regardless of whether you receive your decision on the day of your hearing or later, you will always receive an official letter from the tax tribunal with the decision in writing. If you lose your appeal, you have two options:
Ask the tribunal to reconsider the case if there were procedural issues, such as not receiving important paperwork.
Request permission to appeal the decision if you believe there was a legal error, such as the incorrect application of the law.
Do You Need Help with How to Appeal to the Tax Tribunal?
If you are an SME business owner or private individual looking to discuss appealing tax decisions to the tax tribunal, contact us today on 020 8780 2349 or get in touch with us via our contact page to speak with a professional and arrange a complimentary, no-obligation meeting.
We can provide you with tailored advice and guidance to navigate the tax tribunal process effectively, ensuring that you are well-prepared and have the best chance of achieving a favourable outcome.
A Guide for SMEs Exporting Goods Abroad
Exporting goods to customers outside of the United Kingdom remains a tantalising prospect for many small to medium-sized (SME) business owners. The potential rewards, including increased sales volumes and international exposure, are often deemed worth the additional paperwork and regulatory hurdles. This updated guide will walk you through the essentials of exporting from the UK in 2024, focusing on the impact of Brexit, government support initiatives, and practical advice for navigating the complexities of international trade.
The Current Export Landscape
Since 2015, the landscape for UK exporters has undergone significant changes, particularly due to Brexit and the global COVID-19 pandemic. The UK's exit from the European Union has introduced new customs requirements and regulatory challenges. However, it has also opened up opportunities for trade with non-EU countries through new trade agreements.
Impact of Brexit
Brexit has fundamentally changed how UK businesses trade with Europe. New customs procedures, tariffs, and regulatory standards mean that goods sent to EU countries are now considered exports rather than 'dispatches.' This change has added complexity but also allows for new opportunities in global markets. For example, if you are exporting handmade furniture to Germany, you now need to comply with both UK export regulations and EU import regulations, including obtaining the correct commodity codes and ensuring your goods meet EU standards.
Government Initiatives and Support
The UK government has been proactive in supporting exporters through these transitions. The "Made in the UK, Sold to the World" strategy aims to boost exports to £1 trillion by the end of the decade. Key initiatives include:
- Export Support Service: Provides a single point of contact for exporters to Europe, offering tailored advice and assistance. Businesses can access one-to-one advice via a helpline and online service, making it easier to navigate the complexities of exporting to Europe.
- UK Export Academy: This programme offers training to SMEs on the technicalities of exporting and finding new opportunities in overseas markets.
- UK Tradeshow Programme: Helps businesses exhibit their products at major international trade shows, which can be a game-changer for market exposure.
- UK Export Finance: Expands support for securing overseas business deals, offering various financial products and insurance to ensure no viable export fails due to lack of finance.
Eligibility Criteria for Government Initiatives
To qualify for these government initiatives, businesses generally need to meet specific criteria:
- Export Support Service: Typically, businesses should have a turnover of £500,000 or more, a product or service ready to export, and some experience in exporting. They should also be looking to enter or expand into a new market.
- UK Export Academy: Open to SMEs of all sizes and industries, providing foundational knowledge and skills necessary for exporting.
- Internationalisation Fund: Open to SMEs in England with significant potential to grow international sales. This fund supports attendance at trade fairs and other market expansion activities. To apply, businesses must be registered in England, be SMEs with up to 250 employees, have an annual turnover of less than €50 million, and not be more than 25% owned by a larger enterprise. Additionally, they should have an export action plan approved by a DIT International Trade Adviser.
Applying for the Internationalisation Fund
To apply for the Internationalisation Fund, businesses must follow these steps:
- Initial Contact: Reach out to the Department for International Trade (DIT) via their regional network.
- Discuss Plans: Engage with a DIT International Trade Adviser to discuss your export strategy and identify suitable activities.
- Export Action Plan: Develop and agree on an Export Action Plan with the adviser, detailing how the fund will support your international growth.
- Submit Application: Complete and submit the application, ensuring all criteria and documentation are met.
Funding can be used for activities such as market research, IP advice, translation services, participation in trade fairs, and international marketing efforts. It is important to note that production costs, employee costs, and asset purchases are not eligible for funding.
Emerging Markets and Opportunities
While traditional markets in Europe remain important, there is significant potential in emerging markets such as Asia, Africa, and Latin America. These regions offer high growth rates and increasing demand for quality products and services. UK businesses are encouraged to explore these markets to diversify their export portfolios and reduce dependency on European markets.
Case Studies
Tech Startup Expands to Asia: A UK-based tech startup leveraged government support to break into the Asian market. By participating in the UK Tradeshow Programme, they showcased their innovative products at major tech expos in Singapore and Japan, securing significant contracts and establishing a regional presence.
Manufacturing SME Enters African Market: A mid-sized manufacturing company based in the Midlands used the Internationalisation Fund to attend trade fairs in Kenya and South Africa. Through these events, they connected with local distributors and now export a substantial portion of their products to these growing markets.
Navigating Regulatory Changes
Post-Brexit, businesses need to comply with new customs declarations, rules of origin, and regulatory standards when exporting to the EU. It's crucial to stay informed about these changes and seek professional advice to ensure compliance and avoid costly delays. For example, food exporters must adhere to stringent EU health and safety standards, requiring detailed documentation and certifications.
Practical Tips for Exporting
- Understand Market Requirements: Research the regulatory standards and consumer preferences in your target markets.
- Utilise Government Support: Take advantage of resources and programmes offered by the Department for International Trade.
- Build Strong Relationships: Establish connections with local partners, distributors, and customers in your target markets.
- Invest in Training: Ensure your team is knowledgeable about export procedures and international trade regulations.
Final Thoughts
Exporting offers significant growth opportunities for UK businesses. By understanding the current landscape, leveraging government support, and strategically entering new markets, SMEs and private individuals can successfully expand their international presence. For tailored advice and support, consider contacting a professional export advisor or using government resources designed to assist UK exporters.
Need Help with Exporting?
Here at TaxAgility, our experienced accountants can provide the expertise you need to navigate the financial complexities of exporting your goods abroad. To discuss your SME’s international export ambitions and how you might seek further assistance, contact us today on 020 8780 2349 or via our contact page to arrange a complimentary, no-obligation meeting.