Sole trader employing spouse

Sole trader preparing accounts to December 2011. Draft accounts showing a rather high tax bill. Can he declare a salary for his spouse to reduce the taxable profit?

Thanks

Spouse salary would be subject to PAYE?PRSI etc> Employer contributions would also apply. In addition if the spouse was claiming a carers allowance for children, this would be amended to PAYE allowance.

44brendan said:

Spouse salary would be subject to PAYE?PRSI etc> Employer contributions would also apply. In addition if the spouse was claiming a carers allowance for children, this would be amended to PAYE allowance.

Click to expand...

There wouldn't be any employer's contributions when the employer is a spouse. Also, strictly speaking the salary paid must be reasonable for the duties performed, but the kind of amount involved in a case like this would be unlikely to cause a problem.

I think the simple quick answer is; not really.

In simplest terms; yes, taxable profit down for the sole-trader but taxable wages increase for spouse.

As ,by the time your wife reaches pensionable age, the authorities will probably demand many more years of PRSI contrIbutions than at present it is worth employing your wife so as to start building up those contributions.

I had the opposite problem. Stupidly, for many years, I never declared my wife as an employee ,even though she did indeed spend several hours doing the books for my business.
When I eventually did put her on the books we had an investigator come round the house to check whether she really was working. Took two hours of questions.

It wasn't the Revenue people -it was a "deciding officer, scope Section, Dept of Social and Family Affairs."

So, they do check sometimes that a spouse is a bona-fide employee ,even if working from home and even if for a few hours.

Thanks for the responses.

Reason for employing spouse would be to increase the standard rate cut-off.

Should the sole trader really apply for a tax cert for spouse and make payroll deductions for tax/usc throughout the year or is it ok to wait until tax return deadline to declare spouse's taxes?

Isn't the spouse Class M for PRSI (no contributions)? Would she be entitled to any benefits?

Yes it can be done once its reasonable.

Yes its class M.

Just file a P35 / amended P35 (if other employees) for 2011.

kennyb3 said:

Yes it can be done once its reasonable.

Yes its class M.

Just file a P35 / amended P35 (if other employees) for 2011.

Click to expand...

If you encounter a sticky auditor there could also be the issue of payment of these wages - if the payment of periodic wages isn't recorded or visible (and in this kind of case it won't be due to the fact that it's retrospective) you could end up being told it won't fly.

mandelbrot said:

If you encounter a sticky auditor there could also be the issue of payment of these wages - if the payment of periodic wages isn't recorded or visible (and in this kind of case it won't be due to the fact that it's retrospective) you could end up being told it won't fly.

Click to expand...

Cheers for that. Obviously it's not ideal and the OP should rectify the position for next year. I know for any clients we have that are going to be over the marginal by a significant amount we advise the declaration of wages and the payment of same on an ongoing basis and dealing with the P30's as they arise.

You get absolutely nothing for class M.