Accountant appears to have let me down?

by Readers Question

4 years ago

Accountant appears to have let me down?

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Accountant appears to have let me down?

I have just received back my accounts from who I thought was a very good Chartered Accountant . I have been looking for ways to reduce my tax bill and came across Property118 advising ways to reduce liability.

One of the ways was to distribute some of the rental profits around the family using your spouse or partner. My accountants know that my husband works in the properties and yet when I had a meeting many years ago they told me that HMRC would never except me paying my husband a wage.

They sat and laughed at me!

The properties are in my name only.

The other day my accountant spoke of setting up a trust. He never gave any advice on being able to pay my husband to manage my properties.

Before I speak to my accountants I would be glad of some advice please.

Janaccountants



Comments

Neil Patterson

4 years ago

Hi Jan,

I am sure you will get some great guidance from readers, but do remember you should only act upon qualified and insured advice that has all your records to hand.

All of us at Property118 recommend the accounts we use ourselves. see >> http://www.property118.com/member/?id=452

I'll be interested to see if we get a reply from a qualified professional on this (just to be clear, I'm not a qualified professional).

My guess is that you'll only be able to claim tax relief if you can demonstrate that your husband is actually doing work at the property (specific tasks, not something vague like "managing the property") and being paid a proper wage for his troubles - and I'd also guess that it will be very hard indeed to convince HMRC of this.

In any case, unless your husband pays tax at a lower rate than you it'll be self-defeating as he'll be liable for tax on the wage you pay him.

4 years ago

Hi Jan

whilst its possible to place property into trust and yes it can be feasible to "re-direct" the rental income there are a great many factors that need to be considered.

Your first step should be ask your accountant to for WRITTEN details of the trust + all the pros and of course all the cons! Then ask someone like myself to take a look.

Best of luck
Garry Streeter

Shakeel Ahmad

4 years ago

Many, Accountants & lawyers do shoddy work due to being too long in the profession, cost or plain & simple not acting in the clients best interest. I am not suggesting that is the case in your circumstances.

They know that the clients are mostly ill informed and any advise given by them can be defended due to legislation, theory & practice laws or past cases.

If the client takes them to their respective supervisory body. the clients have little or no chance besides lip service and in some cases not even this.

The only option is to take a second opinion & draw your own conclusions

Joe Bloggs

4 years ago

hi
i cant see how HMRC could object to you paying your husband for managing or working in your properties.
why not. sole traders, partnerships and companies employ family members all the time.
and as the property is personally owned, my understanding is you can pay him what you like as there is no company with a separate legal entity from you.
why not phone the self assessment helpline to get a definitive answer?
im not an accountant...

Jeremy Smith

4 years ago

Why is your accountant suggesting a Trust ?
Is this to pass assets that you own on to your children, so that your estate value is reduced ? - I thought that this is the function of a Trust.
- I am NOT an advisor, nor do I have any experience in the field but only knowledge from friends who have created trust funds.

A trust, as far as I know, has nothing to do with transferring working profits from your business to your partner.
Perhaps other readers will correct me if this is not the case, and point out how it can be done through a trust.

If you AND your partner work in your business then it should be the case that you both have wages from it.
If you are self-employed, then you are taxed through your self-assessment tax return, but if you employ someone, then you should make them an employee, paying them through the PAYE system, deducting tax and NI at source (ie as you pay them)
..but if your employee is your partner, then you need further advice, to find out if you need to treat them differently than any other employee.
If your employees work for at least three people/businesses, then they can be self-employed, if they are not, they should be "employed" status and paid through your books. - You would need to register as an employer and get the information from the tax office about this.

If your partner or relatives are self-employed as well, then they should just give you a written invoice for their work. which you put into your accounts as a cost and tax deduction for you, if they earn less than the taxable income, then they will not need to pay tax on it, after they put their self -assessment tax return, but they would need to be paying their NI contribution of around £6-7 per week.
There is a rule about deducting tax at source from other contractors, but you would need to find out about that.

- I would suggest that you first read through ALL the HM revenue guidance notes that you can find on the subject, making notes, and then give them a ring to ask about all your queries, getting them to confirm all your questions in an email answer.

Good Luck !

....My various accountants have failed me over the years , with NO good advice in advance, and I have come to find that only the information that I have found out can be relied upon: one accountant declared 2 properties in one year, then 4 properties for the following year, with the income approximately the same, - a guaranteed recipe for the taxman to query my return !!!

Reply to the comment left by "Joe Bloggs" at "25/07/2014 - 23:29":

Re Joe Bloggs comment: Joe is right to say that other businesses employ family members and there can be tax advantages. However, my understanding is that to avoid the risk of a challenge from the tax man you need to show that it is a commercial arrangement (i.e. they are actually doing work and being paid a wage for it), and that its not simply a tax-saving ruse.

In any case, the tax advantages are not guaranteed. As I said earlier, if Jan's husband pays tax at the same rate as Jan then at best it will be self-defeating because Jan's husband will have to pay tax on the wage that Jan pays him, cancelling out Jan's tax saving. if he pays tax at a higher rate than Jan his tax liability will be greater than Jan's saving.

Worse, HMRC might decide he's a self-employed property manager and thump him for 9% NI on his earnings, as well as his tax liability.

Worse still they might decide Jan's husband is properly employed by Jan and thump Jan for 13.8% employers NI contribution plus her husband for another 12%, and that's on top of Jan's husband's income tax liability.

Be careful what you wish for.

Jan Martin

4 years ago

Thank you for all your replies and advice . The accountant talked of a trust in order to be able to use my husbands allowance to reduce my tax on rental profits. I asked him which trust and he said he didn't know yet .
My husband has worked hard in the properties . Refurbishing plumbing decorating etc and I have plenty of receipts for materials bought etc .

Jan Martin

4 years ago

Thanks again to everyone who has answered my question . I thought I would update with my latest findings .
It seems that formal notification to HMRC of beneficial interest only applies to married joint owners of properties.
In the case of solely owned property any agreement between parties need not be recorded in writing .
Property income can be allocated to any individual with a beneficial interest but the income must be declared to HMRC.

Shakeel Ahmad

4 years ago

I appreciate that your Accountant will have more information about your affairs than any one on the forum.

To set up a trust to reduce your rental income could be self defeating especially as interest rates as expected to go up some time soon will negate any rental surplus.

The Majority of people who buy a property is for capital appreciation & not rental surplus.

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