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using a 'partnership' to best utilise tax allowance?

Discussion in 'General Business Forum:' started by bigdave, May 27, 2015.

  1. bigdave

    bigdave Moderator Staff Member

    I work full time, I also work freelance. My fiance is a self employed designer. Because of the obvious overlap in skills, we usually end up sharing the workload on most projects. However, because I'm PAYE as well as self employed, I pay tax on everything I earn from freelance whilst my fiance doesn't make anywhere near her personal allowance. This last financial year has been such that after expenses her personal allowance could have absorbed my entire years freelance income! It seems silly that for the main part, we both work on projects together yet anything that goes through my books attracts tax whilst it wouldn't if it went through hers.

    One thought I'd had was to simply put 50% of everything through her accounts as both businesses use the same 2 bank accounts, (possibly get her to invoice me for that amount) but I figured that essentially invoicing yourself to reduce tax liability may well be classed as tax evasion? So the only other way I can see of better using her tax allowance would be to become a partnership. Ive been told that on this scale there's no legal documentation required but I cant seem to find any info on the ins and outs of partnerships or the added complexities come year end.

    Has anyone entered into a partnership? how does book keeping differ from sole trader? Am I just over complicating things and is it ok for her to simply invoice me for 50% of the work?
     
  2. hankscorpio

    hankscorpio Moderator Staff Member

    Honestly, I'd seek the help of Certified Tax Advisor.
     
    bigdave likes this.
  3. Paul Murray

    Paul Murray Moderator Staff Member

    ^ What he said. Speak to an accountant, they're best placed to advise you on what you can do legally.
     
    bigdave likes this.
  4. hankscorpio

    hankscorpio Moderator Staff Member

    Accountants are good - but there are Chartered Tax Advisers who deal with these specifically.

    The Chartered Institute of Taxation | Home

    The CIOT is the organisation in the UK that trains Tax Advisors - used to deal with them in the last job.
     
    Paul Murray likes this.
  5. Moominbaby

    Moominbaby Member

    If your a limited company you can set the shares up so you could receive 10% and your partner receives 90% that way you would save paying money on the next tax bracket, 40% ouch! That what me and my husband did but thats only if you are limited. and the company pays 20% tax on everything after expenses.

    However the key thing is is that you/partner as a company can pay yourself a wage.... no tax on that money because you are paying yourself a wage.... you only pay tax on that when you come to your own personal tax return... you could pay the tax free allowance to your partner and you would save the tax on that and you wouldnt need to pay any NI either.

    But all this is only if you are limited which is easy to do but the next step up and like everyone else says have a chat to an accountant but mention this as if they have any sense at all they will know what I mean ;)
     
  6. Dave L

    Dave L Well-Known Member

    Like Moominbaby, I'm an advocate of limited company status for individuals simply because it's a structure that allows you to keep more of what you earn: unless you're making big money (as opposed to making a reasonable living), the division between salary and dividends can allow you/your partner to draw a salary up to your personal allowance, draw additional income as dividends (where finances allow) and only pay corporation tax on your company profit - you're still contributing tax on anything over your personal allowance in the form of CT but it's at a reduced rate. LLC admin is also a lot simpler than it used to be and most accountants will offer low cost packages on this sort of arrangement.
     
  7. bigdave

    bigdave Moderator Staff Member

    Thanks for the advice guys, we had a good chat with an Accountant about how best to work things and he's pointed us in the direction of registering a partnership. The positive is that whilst we're not earning a huge amount (<£12kp/a) through the partnership, the accounting is simple and there will be little or no tax liability. The downside is that as a partnership all paperwork needs to be done as a single business, so whilst we could keep invoicing from the 3 businesses we current run between us, a tax inspection would cause no end of difficult questions and potential pitfalls. This means we'll have to re-brand and I hate self branding projects!!
     

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