# ltd company "employees"



## banjo (11 Aug 2007)

I was told by an accountant in a quick consulatation that I could pay my wife as an employee of my potential ltd company ( IT consultancy ) even if she did not really do actual work for the company , e.g. I could always say she did admin work for example.
btw , she would also be a director.
Is this legal and if so , what is to stop me paying my kids or 10 non working mates a small salary to take advantage of 10 very low tax bands and tax rates?
(ok , assuming they give me the money back less a few quid !)
seems too good to be true so im sure theres a catch.
thanks for any advice.


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## Bank Manager (11 Aug 2007)

Nothing wrong with your proposal, apart from....

a) sounds like you've been speaking with a dodgy accountant...

b) you would be lying to the Revenue..

c) your wife would be lying to the Revenue...

d) your ten friends would be lying to the Revenue...

e) you would be defrauding the Revenue...

Suggest you ask accountant to put his proposal in writing to you (with all the detail included) and then run it by the Revenue for sign-off!

I think you know yourself that his proposal is not legal...

BM


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## z108 (11 Aug 2007)

It happens all the time . I know several wealthy people who have their wives and children give them their p45s. 
One of my friends' dad gave her the tax claimed  back (but not the salary) during her time in college ! Even though she was a full time student she still got maybe 250 euro a week into her hand. I dont know about employing your jobless mates but as far as my recent observations go its very possible to pay your immediate family a wage and claim they are earning it by working or contributing to the family business in some way.
Even if its dodgy it must happen a lot.
As far as not really workling goes, if someone can really negotiate a job with such minimal hours or responsibilities then why wouldnt they accept it ? Im sure the wife does provide support to you anyway which frees up time for you to invest in the business so indirectly she would contribute work to the business already in my view.


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## banjo (11 Aug 2007)

thanks lads , fair enough , I was joking about the ten friends idea!
the wife / family member as employee does seem somewhat more legitimate or at least plausible and I have heard of it being done before.


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## Bank Manager (11 Aug 2007)

It is absolutley legitimate - as long as they do actually work in the business....


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## hhhhhhhhhh (12 Aug 2007)

banjo said:


> thanks lads , fair enough , I was joking about the ten friends idea!
> the wife / family member as employee does seem somewhat more legitimate or at least plausible and I have heard of it being done before.


Using the wife is just good tax planning, she will have no paye tax credit.

The kids are fine if you want to share the money around, if you are giving
them large sums and getting them to give you the cash back you could
run into problems, they will have no paye tax credit also.


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## Domo (12 Aug 2007)

As stated above, all will be OK if in fact the individuals actually do some work......... otherwise it is dodgy!!!


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## contemporary (13 Aug 2007)

remeber the prsi cost to the company though


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## Niall M (13 Aug 2007)

this is not something new and goes on all the time to take advantage of extra tax bands etc. Its not dogey at all. Also, there is no Employers PRSI to be paid for family members as they are classes at class M.


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## contemporary (13 Aug 2007)

dont know about that, class M would leave them no benefits 

http://www.welfare.ie/topics/prsi/prsiclasses.html


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## KalEl (13 Aug 2007)

As other posters have pointed out making your wife an employee is pretty common and acceptable, especially as she will be a director...that's all the accountant advised to do so he's not "dodgy"
The OP's additional suggestions regarding children and friends are ill advised and should only be joked about!


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## Richie (15 Aug 2007)

Following up on what contemporary said - be very careful messing with your wifes PRSI record as well. If she is a director (and assuming she is a 50% shareholder) she would pay PRSI under class S. This would affect her ability to claim State Pension (Contributory), Disability Benefit, Job Seekers Benefit and Illness         Benefit.

This may not be important now, but I have come across a number of people who have had ample time to regret short-cuts taken with their social insurance record on reduced benefits later in life.


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## ButtermilkJa (18 Aug 2007)

Niall M said:


> this is not something new and goes on all the time to take advantage of extra tax bands etc. Its not dogey at all. Also, there is no Employers PRSI to be paid for family members as they are classes at class M.


..."not dodgy at all".

What is being proposed here is that the main director creates an 'imaginery' employee and collects their salary for themselves to avoid paying higher tax rates.

Sounds _very _dodgy to me.


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## Hans (12 Sep 2007)

Niall M said:


> this is not something new and goes on all the time to take advantage of extra tax bands etc. Its not dogey at all. Also, there is no Employers PRSI to be paid for family members as they are classes at class M.



Surely this is not true I looked up social welfare website and they say this is only available to Sole Traders I have a limited company and would like my business student son to help me out part time so does this mean I have to pay PRSI for him.


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## ubiquitous (12 Sep 2007)

There is nothing inherently illegal in a company paying a salary or fees to a director, once they are working for, or contributing their expertise to, the company and its business. 



> what is to stop me paying my kids or 10 non working mates a small salary to take advantage of 10 very low tax bands and tax rates?
> (ok , assuming they give me the money back less a few quid !)
> seems too good to be true so im sure theres a catch.
> thanks for any advice.


You really should have asked your accountant that question. The answer is that there is nothing to stop you doing this. However if you try to be "too smart" in the manner in which you comply with Revenue & tax requirements, they are likely to notice this and possibly subject your arrangements to special scrutiny. You could well face tax, interest and penalty bills if they invoke anti-tax avoidance legislation to disallow any tax savings you might have made.


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## Hans (12 Sep 2007)

Does anybody know what the situation is with PRSI when a director of a LTD Company employs his son on a parttime basis. Does the company have to pay PRSI for this employee even though the son will be earning below the treshold where he will have to pay PRSI himself


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## lalaboots (14 Sep 2007)

This is perfectly legitimate!! The reason this works is that, as long as your wife is not working elsewhere and using her tax free allowances in other employment, she has 25K per annum (or thereabouts, cant remember 2007 figure) that she can earn at 20% that is not transferrable to you.  I'm presuming that if you are the only one working, you have all the other allowances.  If your income extends into the 42% bracket then this is when you pay your wife the portion of your income above that.  She pays tax at 20% rather than you at 42%.  Its all perfectly legal and above board.  Your wife is a director of the company and as such can be paid for making the tea if necessary!  You can't employ your kids (until a certain age anyway) and your mates have nothing to do with it.  Get a copy of Family finance or one of those from the library and have a look.  If your accountant doesn't suggest this, I'd get another accountant.....


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## ButtermilkJa (14 Sep 2007)

I can see how this would work if you're married... i.e. you pay your wife a salary of €34k for making tea/typing letters/calling clients etc and then whatever money she makes eventually goes toward paying for family bills anyway.

However, this is different to what I was talking about. I am the MD of my own company, and my mother is the 2nd director, but purely for legal reasons, she has no say in the co. and does not provide anything towards it, work-wise, or monetary. Surely I can not pay her a salary and then ask her to give me back the money so I can avoid paying 41% on it?


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## Nige (14 Sep 2007)

ButtermilkJa said:


> Surely I can not pay her a salary and then ask her to give me back the money so I can avoid paying 41% on it?


 
No, but if you wanted to help your mother out financially and you could find a couple of jobs for her to do, it would be a very tax efficient way of doing so.


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## ButtermilkJa (14 Sep 2007)

Nige said:


> No, but if you wanted to help your mother out financially and you could find a couple of jobs for her to do, it would be a very tax efficient way of doing so.


Yes, definitely, which is something that I may do in the future, but some of the posts above are suggesting it's prefectly fine to 'pretend' your spouse is working in order to avoid/evade? tax.


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## ubiquitous (14 Sep 2007)

lalaboots said:


> This is perfectly legitimate!...  Its all perfectly legal and above board.
> 
> ....Your wife is a director of the company and as such can be paid for making the tea if necessary!
> ... Get a copy of Family finance or one of those from the library and have a look.



In my view, this approach is simplistic to say the least.

The usefulness or otherwise of this type of arrangement depends totally on the context. To take an extreme example, an engineer whose limited company contracts onsite to an offshore oil rig might have difficulty in persuading the Revenue that his wife or kids work in the business. This may not be the case if the wife is actively involved in the business.

It is simply not credible to pay someone €??,000 per year for making tea.

Anyone who uses the likes of the Family Finance book as a basis for decisions on matters such as this, instead of proper professional advice, is crazy in my opinion.



lalaboots said:


> If your accountant doesn't suggest this, I'd get another accountant.....



Again (speaking as an accountant myself) I find this a strange statement. A good accountant should be able to advise whether employing spouse and/or kids is a realistic option in any given situation. However, you defeat the whole point of getting advice in the first instance if you decide that you only going to accept the advice that you want to hear.


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## Welfarite (14 Sep 2007)

This from the www.welfare.ie site:

*"2. Family Employments that Are Covered for Social Insurance (PRSI)*

The following categories of 'Family Employment' are insurable under the Social Insurance system in exactly the same way as employments that have no family connection:

If you are employed as an employee by a 'prescribed relative'* _and the employment is *not* related to a private dwelling house or a farm in or on which both you and the employer reside_ (PRSI Class A or Class J applies).
If you are employed as an *Apprentice* by a 'prescribed relative'* (_even if the apprenticeship employment *does* relate to a private dwelling house or a farm in or on which both you and the employer resides_). There must be a registered Contract of Apprenticeship involved (PRSI Class A or Class J applies).
** A 'Prescribed relative' is a parent, grandparent, stepparent, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother, or half-sister.*

*3. Family Employments that Are Not Covered for Social Insurance (PRSI)*

The following categories of 'Family Employment' are the exceptions that are *not* covered by the Social Insurance system:

If you are employed as an employee by your spouse.
If you are employed as an employee by a 'prescribed relative' and the family employment relates to a private dwelling house or a farm in or on which both you and the employer reside.
If you assist or participate in the running of the family business but *not* as an employee. (For example, a son/daughter who is attending full-time education who participates in the business (e.g. farm) after school hours or a spouse who carries out book-keeping work for the business – but is not an employee).
*NOTES*
*(1) Even though you may not be insurable for social insurance purposes PRSI Class K (Health Contribution) may be payable.*
*(2) PRSI Class M is used to record situations in which there is no liability whatever to either Social Insurance or Health Contribution.*
*(3) Subject to certain conditions, if you cease to be covered by compulsory PRSI you may opt to become insured on a voluntary basis and pay Voluntary Contributions. For further details please see the Department’s information leaflet "Guide to Voluntary Contributions" (SW 8).*

*4. Point to Remember*

'Employed as an Employee' means that you are employed in the family business under the same terms and conditions as a worker who is not a relative. You would, for example, be subject to control, direction and dismissal by the employer, receive a salary and holiday pay and have no control over the running of the business.
*5. Limited Companies and Partnerships*

If the business is either a Limited Company or Partnership it has a separate legal entity. Employment in such a business is *not* 'Family Employment' because the employment relationship is with the Limited Company or Partnership rather than the individual family member who owns/runs it.
*Limited Company*

If you work for a Limited Company that is owned by a spouse or a family member, the PRSI you pay is determined by the circumstances of your employment.

If employed as an employee you are insurable (PRSI Class A or Class J applies).
If you are *not* _an employee_ but participate in the running of the company or if you hold a directorship/shareholding position and have control over its operations, you *may* be treated as a self-employed contributor. PRSI Class S applies if you have reckonable income of at least €3,174 per year from all sources.
The key question is whether or not you are employed as an employee. The factors that are taken into account in deciding this matter are quite complex. They are set out in a "Code of Practice for determining Employment or Self-Employment status of Individuals" – copies of which are available from the Department.
*Partnerships*

*Two or more family members who operate a business as a Partnership and share the profits may be insurable as self-employed contributors at PRSI Class S, provided each has a reckonable income of at least €3,174 per year from all sources.*
*The following points should be noted:*

The Partnership *must* be genuine and supported by appropriate documentary evidence such as, the existence of joint business accounts with banks, etc. There should also be evidence that business activities are in joint names including Invoices, Mart, Creamery Accounts, Cash & Carry Accounts, Farm Grant Applications, Herd Numbers, Business Insurance Policies, etc.
The most important indicator of the existence of a business partnership is the sharing of profits (or losses). Income Tax returns of each partner showing his/her share of the profits should be available. In the case of married couples making income tax returns under joint or separate assessment, the income of each must be shown.
The Income Tax returns should be correctly made on a current year basis - applications for the backdating of Partnership status are not accepted. "


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## Domo (14 Sep 2007)

If you make payments to a director (director's fees) that are reasonable there would be no problem with this.  Discuss what would be reasonable with your accountant.

If you want to pay other individuals, they really need to pe paid for real work - e.g. the Revenue would have a problem with paying €35K per annum to somebody who types one letter a month and a couple of invoices.

I have seen cases in the UK where the Revenue have demanded a list of duties of employees and then looked into whether they actually performed the duties.

As suggested - if the work is really done, and the payment reasonable - no problem with that.


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