self-employed: income division between spouses

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elacsaplau

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Say there was a husband and wife who had a sole trading business generating net taxable profits of 200k p.a. Say also the wife spent most of her time looking after the children.

Can the €200k be split between spouses for the purposes of maximisation of tax bands, reduced USC, etc.? What are the precise rules around this and where are they set out, (legislative references, etc)?
 
elacsaplau said:
Say there was a husband and wife who had a sole trading business generating net taxable profits of 200k p.a. Say also the wife spent most of her time looking after the children.

Surely they have an accountant!!!!!!

Can the €200k be split between spouses for the purposes of maximisation of tax bands, reduced USC, etc.? What are the precise rules around this and where are they set out, (legislative references, etc?
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The husband could employ his wife to use up her standard rate band. If he is a sole trader then he can't allocate profits to his wife as she is not a partner.

Seriously @200k there are better structures that a sole trader employing his wife to deal with tax. Get professional advice!!!!
 
elacsaplau said:
Can the €200k be split between spouses for the purposes of maximisation of tax bands, reduced USC, etc.? What are the precise rules around this and where are they set out, (legislative references, etc)?
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What you're talking about is in the first instance a question of fact.

The key thing in relation to a SOLE trade is in the name - it's a trade carried on by one person and the profits generated are those of that one person. As Joe said above they can employ their spouse if they so choose, and pay them a salary so as to ensure the rate bands etc are utilised, but that would be open to challenge if it couldn't be evidenced that the spouse was actually performing anything to warrant the level of pay.

If the income from the trade is to be split or apportioned in some way, then there would have to be a partnership in operation. Whether or not there is a partnership is a question of fact - and if they register a partnership and file a partnership return Form 1 Firms, and their income tax return accordingly with the profit apportioned according to the basis set out in the Form 1, then that would generally be accepted as being the case.
 
Thanks Mandelbrot

Good job this is an anonymous forum; otherwise you'd be legitimately serving me with a hefty invoice!

So in our hypothetical scenario, if someone was earning 200k as a sole trader, presumably there is a tax/PRSI saving should a married couple set up a partnership?
 
In a hypothetical situation a sole trader would only be earning €200k per annum if they were prohibited by law from forming a limited company.

In that situation they would not be able to form a partnership. I'm thinking of doctors, dentists, solicitors, medical consultants and the like.

The alternative would be a admin services company but that has VAT implications for the sole trader business.
 
To continue with this discussion. I have similar question.
Turnover as a tradesman (sales cost including istallation) about €150-190k per year including VAT at 23%.

Would it be allowed for stay-home wife to register herself also as Sole Trader in similar trade as her husband, keeping her business without VAT registration and take about €75-80k of that sales to her name? Lets say private customers who do not require VAT invoice for jobs completed. Commercial customers would remain under current Trade with VAT registration.
By rough calculations we would save about €5000 a year on VAT payments.
 
user1505 said:
To continue with this discussion. I have similar question.
Turnover as a tradesman (sales cost including istallation) about €150-190k per year including VAT at 23%.

Would it be allowed for stay-home wife to register herself also as Sole Trader in similar trade as her husband, keeping her business without VAT registration and take about €75-80k of that sales to her name? Lets say private customers who do not require VAT invoice for jobs completed. Commercial customers would remain under current Trade with VAT registration.
By rough calculations we would save about €5000 a year on VAT payments.
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I'm sure one of the accountants/ tax advisors will confirm the correct position but that sounds like tax evasion to me and will be easily rumbled by the Revenue. How is the stay-home wife going to actually do the work if she does not have a trade? She'd have to hire someone i.e. you, to do it. And you would have to charge her VAT on the service that you carried out.

If her side line business is not VAT registered, her business would not be able to claim the VAT back on any of the supplies bought to do the job either.

Not sure why you are trying to reduce VAT payments anyway. Aren't you charging this to the customer anyway on top of your costs? It shouldn't make a difference to the amount of income that you generate. I know it doesn't make a difference to my income, I quote a price to clients and the VAT is added on top.
 
Steven Barrett said:
Not sure why you are trying to reduce VAT payments anyway. Aren't you charging this to the customer anyway on top of your costs? It shouldn't make a difference to the amount of income that you generate. I know it doesn't make a difference to my income, I quote a price to clients and the VAT is added on top.
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VAT is a cost on the final consumer, so I think the OP's idea was to find a means of hiving off some of the small domestic jobs for non VAT registered customers (for whom any VAT charged is not recoverable).

This is not a new idea and there are anti-fragmentation provisions for VAT to counter this sort of messing - it's really not worth the risk involved, as Revenue would almost certainly cop on to it at some stage, which could be several years in, by which time the hole has become quite deep...
 
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Oh, and I've just spotted that @user1505 has indicated that their trade is materials-heavy, since VAT at 23% is being charged.

Setting up a second trade under the wife, without a VAT registration, would mean no input credit on those materials, further eroding the benefit of the endeavour.
 
Ignoring the Vat issue here and focussing on the income tax issue the matter is whether a payment to a spouse is qualifying tax deduction. The rule is that the payment must be wholly & exclusivley for the benefit of the trade. If it doesn't meet this test then no deduction should be available in the sole trade accounts and the indivdiual will be taxable on the full profit. The matter therefore is what does the spouse do for the trade? If their role is minding children then I can't see how this can be for the benefit of the business. In the recent past the Revenue have challenged such deductions and won at the tax appeal commission. In reality, it is not difficult to determine if someone did the work or not.
 
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