Company hiring a spouse to reduce employees effective tax bill

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Blackrock1

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Theoretical question, but if any employer was agreeable to it, is there any legal impediment to an employee foregoing say 35k of their salary taxed at their marginal rate and their employer employing their spouse and paying them that portion?

The spouse would have no other income and wouldnt actually be required to work for the company.
 
I am not sure that it would be actually fraud, but Revenue can "look through" an arrangement such as this and say that as it has no commercial meaning and was only undertaken for tax purposes, and therefore they will ignore it.

The company involved might also expect a Revenue audit looking at all aspects of their business.

Many small companies do something like this, where the owners spouse is put down as an employee, but if they are sensible they define some reasonable responsibilities and make some shape toward meeting them. e.g working from home as part of the accounts team.
 
Surely it would be fraud as it's in order to give a spouse prsi stamps and reduce the husband's tax. Based on the prsi the spouse would have unemployment income, redundancy, pensions rights etc. Unearned.

I agree that many small companies probably do hire the owners spouse. But they are careful to give some sort of job description. But I couldn't see any employer agreeing to this for an employee.
 
Bronte said:
Surely it would be fraud as it's in order to give a spouse prsi stamps and reduce the husband's tax. Based on the prsi the spouse would have unemployment income, redundancy, pensions rights etc. Unearned.

I agree that many small companies probably do hire the owners spouse. But they are careful to give some sort of job description. But I couldn't see any employer agreeing to this for an employee.
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im not sure that it is fraud, surely if a company elects to hire someone its up to them what they do or dont do?

in the scenario i am outlining the employee and spouse would have no ownership or beneficial ownership in the company.
 
Blackrock1 said:
im not sure that it is fraud, surely if a company elects to hire someone its up to them what they do or dont do?
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Not quite and remember its not your view on what constitutes fraud but the revenues view on it.
It may not be 'corporate fraud' from the companies point of view, the question is more related to whether the arrangement is designed purely to avoid payment of tax. The revenue are likely to view it very much as that arrangement, especially if the spouse does not actually do anything for the company.

An arrangement may not break the law, and the revenue may still need it avoidance.


Blackrock1 said:
in the scenario i am outlining the employee and spouse would have no ownership or beneficial ownership in the company.
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I think the point being made here is no company where the persons, are not beneficial owners, would risk this sort of arrangement.


Also, I assume in a case where one spouse is not earning, the couple are jointly assessed for tax
 
sorry i was thinking aloud, i understand its how revenue views something rather than how i feel about...

i'm not advocating doing this, it was just something i was curious about.

to your point that companies wouldn't risk it, large corporates wouldnt of course, but in an entity where you are involved with the owner its more likely.
 
Blackrock1 said:
to your point that companies wouldn't risk it, large corporates wouldnt of course, but in an entity where you are involved with the owner its more likely.
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I think the only place you will find this type of thing being risked is where one of the parties are a beneficial owner, and they are effectively taking the risk themselves. But as said above, you will find the person usual does some sort of administration or accounts function to 'earn' the money.
I don't fully understand what you mean by 'involved with the owner' :)

I remember this coming up in the National Contractors Project as part of the revenue review, and I think they adopted the position that if the spouse was paid market rates for the work done, and kept timesheets etc, it was acceptable - but if not, it was penalised. Now this could also be a UK example, as I do keep an eye on their tax rulings in relation to self-employed IT contractors also !

Maybe in some large family run companies you also see similar behaviour. I remember semi following the Quinn case and never quite understood who was paying what to whom when it came to the children.
 
I would say the easier thing to do is to ask your firm to pay you x% more so that your net pay equals the same as if you were paid less and your wife hired. I assume though that the company is not offering more money and you are looking at other ways to boost income.

I couldn't see any large employer agreeing to this just to help out one employee, it sets precedent, creates an additional employee and with it the responsibility of being an employer.
 
If I was a company owner I would run a mile from this.

Spouse would have to be given a job description, at least some work, etc.

They would also be entitled to sick pay, maternity pay, redundancy and could sue for unfair dismissal if it all went wrong.

There is only downside risk for the company with this arrangement.
 
The complicating factor is that in order for any expense to be deductible for corporation tax purposes, it has to be wholly and exclusively incurred for the purposes of the trade. So a fake salary is not deductible. In extremis, such an arrangement could also be recharacterised under Section 811 (i.e. general anti-avoidance). But the simple takeaway for a owner managed company is that a spouse’s salary must appear legitimate. If I claim that my wife does the paperwork for my business and I pay her €25k a year which happens to be the right number from a 20% rate band perspective, that’s probably fine. But if I pay her €100,000 a year and fund a €2m pension fund for her, that’s probably not fine, unless she’s demonstrably qualified for the role and it’s the going rate. Common sense is required basically.
 
NoRegretsCoyote said:
If I was a company owner I would run a mile from this.

Spouse would have to be given a job description, at least some work, etc.

They would also be entitled to sick pay, maternity pay, redundancy and could sue for unfair dismissal if it all went wrong.

There is only downside risk for the company with this arrangement.
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I still think it would be fraud of some description. And despite talk of Tax Avoidance, legal, it looks more like Tax Evasion, illegal, to me. I don't doubt this carry on happens in small family firms though. There's no way of stopping that though. Like who is going to be able to prove the wife isn't doing the book keeping etc. Or that she does one day of it and is paid for a 40 hour week.
 
It is fraud if the spouse has no duties and is never at the office.

It is very hard to prove malfeasance if there is minimal work being done by the spouse.

We all know highly-paid individuals who don't do very much work:)
 
I don't see a problem with it if the spouse was at home keeping things in order, runing kids to school, activities, cooking and cleaning and all that goes with keeping a family together, why shouldn't they be on the pay roll if the company is sucsessful and can afford to pay them. Behind every successful man or woman is usealy another good man or women.
 
galwaypat said:
I don't see a problem with it if the spouse was at home keeping things in order, runing kids to school, activities, cooking and cleaning and all that goes with keeping a family together, why shouldn't they be on the pay roll if the company is sucsessful and can afford to pay them. Behind every successful man or woman is usealy another good man or women.
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Then how come revenue don't allow all PAYE people to allocate part of their wages to their stay at home spouse.
 
This thread is gas.

It could’ve been closed after Gordon Gekko’s post which pretty much sums it all up.

It’s entirely up to the proprietors of a company who they employ and what they pay them for their service. The key words there, however, are employ and service. If that person is a director (as is often the case with a spouse of the proprietor) then they will be an office holder and the company can pay them a director’s fee as its members see fit. However, if that appears to be out of all proportion to the duties actually performed then as Gordon pointed out, the company will not be entitled to a Corporation Tax deduction for the amount that exceeds a reasonable market rate for the service provided.

In the case of a regular employee of a company, the proposal is just daft, for a number of reasons. It is definitely tax evasion for starters: there’s an agreement verbally between employer and employee that remuneration of the employee (i.e. money due to him for his service) will be characterised as remuneration of his wife, whereas she actually won’t be required to do anything in return for it. This messing would be quickly obvious from looking at the trend of the husband’s pay, which would suddenly and conveniently drop substantially at the exact moment the wife’s increases and the total tax paid falls.

There’d also be the swathe of risks the employer would be taking on, such as what happens if the husband leaves the company to go elsewhere... but they decide that his wife isn’t resigning. They potentially have to pay her redundancy to get her off the payroll.
 
Bronte said:
Legal impediment - that would be fraud.
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It's not to a degree that the Revenue will phone the cops. They'll just say you can't do that and unwind the whole thing.

I worked with accountants for years and they would only allow those type of arrangements if the other spouse did some actual work for the business. One party was always the owner of the business with the spouse usually doing the admin etc and also having director duties. They wouldn't allow it if the other spouse didn't do anything.

As for a large organisation doing it? Not in a million years. Forgo the hiring process and fast track someone's wife in and create a phantom job for them? That would go down well. :rolleyes:
 
This is something that HMRC have cracked down in the UK and unwound a lot of the income etc. Revenue here are also getting very interested in this and have released the following: https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-04/04-06-23.pdf

Its about been smart and not taking the piss. There are however plenty of spouses and children employed in family business who wouldn't even know where the office is located though :)
 
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