I set up a business in lockdown which has gone from strength to strength. My husband is an accountant and helped me in the background to begin with, but over time has taken on more, to the point where we’re wondering how to formalise his involvement and ensure he’s getting paid for his time. We’ve agreed to keep the business in my name, but wondered if I should take him on as an employee?
Phil Booth, lawyer at The Legal Director, says there can be numerous tax and other advantages to employing your husband but you must also be aware of some of the potential drawbacks.
How much to pay your husband should depend upon how much your business can afford to pay him and also the commercial value of his work. His salary will amount to a deductible expense for your business, reducing its taxable profits. You will not want to pay him so much that it jeopardises the financial health of your business. The payments to him should be appropriate compensation for the work he does. In other words, he should not be overpaid.
As an employee, your husband may be liable for income tax on his salary. The rate at which he is taxed will depend upon the amount of other income he receives, for example if he has another job. There may also be a liability for both employer and employee to make national insurance contributions (NICs) if his salary exceeds the NIC threshold.
If your business is incorporated as a company, then your husband could be issued shares and then receive dividends in place of a salary, which may be more tax efficient. Alternatively it may be possible for your husband to be engaged as a contractor as opposed to an employee, which would alter the tax treatment. Specialist tax advice would help to ensure the remuneration for your husband is calculated and structured in the most favourable way while complying with HM Revenue & Customs rules.
If your husband is already employed, then he may need to seek the approval of his main employer to undertake additional work for your business. His employment contract should be checked for any relevant restrictions.
As an employee, he would have all the standard legal rights enjoyed by employees, such as the right to paid holidays, sick pay and the right not to be unfairly dismissed. In addition, if his annual salary is over £10,000, your business should have to provide a workplace pension scheme. If there are other employees in your business, you should also take care that there is no preferential treatment for your husband as far as his treatment and conditions are concerned.
Finally, it is worth considering the effect working together in a more formal arrangement may have on your marriage. Spending more time together may be a bonus. On the other hand, home and work boundaries could become blurred. If things do not work as hoped with the employment, it could impact on your relationship. It would be more difficult to tackle underperformance or conduct issues with your husband than it would be with another employee.
How can we maximise our charitable giving?
As a family we’re keen to review our approach to charitable giving and are no longer happy to just throw money at a project or organisation. We’re keen to do more, for example, to develop ongoing relationships with the people we give to and we would like help on how to do this. How can we structure things to maximise tax breaks? And would our time count for anything in this regard?
Eduardo Bérèterbide, an independent lawyer specialising in cross-border business and family disputes, says the first thing to decide when thinking about how to maximise tax breaks on your charitable donations is whether you will donate as an individual or through a company — and if the family has interests in different countries, where in the world to focus its charitable activities. In most jurisdictions, both individuals and companies can claim tax benefits from their donations to charities. The tax benefit tends to be bigger for individuals.
In England and Wales, individuals can claim the difference between the highest rate of tax they pay, and the 20 per cent basic rate of tax. Thus, if your highest tax rate is 45 per cent, you can reclaim 25 per cent on your donation. A bonus in the UK that you and your preferred charity should not miss is that, in addition to the tax benefit for the individual, the charity can claim an extra 25p for every £1 donated at no extra cost to the individual (this is the Gift Aid scheme). Companies, instead, can claim tax relief by deducting the value of the donation from its total profits before tax.
In the US, individuals and companies can deduct their charitable donations from their gross income — individuals can deduct up to 60 per cent of their gross income and companies 10 per cent.
You must always check in advance that the entity you are donating to qualifies for your tax benefit. In France, the entity must be not-for-profit and have a wide social purpose. This means that an association benefiting only a small circle of people will not qualify.
In UK, only charities registered in the UK are eligible for charitable tax reliefs. Be aware that since April this year, taxpayers are no longer eligible for UK tax relief on donations to EU or EEA charities, and these charities can no longer claim Gift Aid.
You would be well advised to make sure the charitable organisations you support have in place regular reporting policies as to their finances, expenditures and achievements.
Our next question
I recently received a notice from HMRC stating that I owe taxes to a foreign tax authority. This has left me quite perplexed. How can HMRC enforce tax claims from a foreign country? Under what circumstances would I be liable to pay HMRC for a foreign tax authority’s demands? What steps should I take to verify the legitimacy of this claim, and how can I ensure that I’m not being overcharged? Additionally, I’d like to know what my rights are in disputing this claim and the potential consequences of non-compliance.
There is a growing trend in charitable giving to provide not only financial support, but become more personally involved in other ways too. Known as “hands-on charitable giving”, this is about developing relationships with charity managers, keeping in regular touch and really getting to know their material needs, which could be providing advice and relevant introductions and contacts. We have been doing this through an initiative called Lawyers Polo — an event for lawyers and business people that travels the world to play polo, network and support local children’s charities on the ground in the places where the tournaments take place. Often, what charities need is not cash but donations of “time”.
Unfortunately, in most jurisdictions, your time, expertise and skills donated to a charity cannot be claimed as a tax deduction. In the UK, you cannot even claim tax deductions on the expenses incurred while volunteering for a charity. The idea here is that individuals can only claim tax deductions on activities that generate a profit. Even if you cannot claim expenses or tax breaks for your time, being more involved in the work of the charities you support, and seeing first hand the positive impacts on the people they help, has its own rewards.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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