Craig Simpson, Tax Partner at Bates Weston draws attention to the dangers of paying wages to relatives.
A recent First Tier Tribunal Case finds that wages paid by a self-employed individual to his son were not deductible for tax purposes.
The case of Nicholson v HMRC  UKFTT 14 (TC) shows the dangers of paying wages to relatives where it may not be possible to correlate the actual work performed to the wages paid. In this case the taxpayer was helping to support his son through university and wages were paid on the basis of a 15 hour week paid at £10 per hour for promotion of the taxpayer's business. The taxpayer claimed a deduction for £7,400 but a tax deduction was denied as there was a duality of purpose to the payments. The FTT found that the expenses were not incurred wholly and exclusively for business purposes but that there was a dual purpose of providing support at university. There was no detailed record of the work performed to substantiate the 15 hours a week paid.
If you have clients who are paying wages to adult children and may be caught by this decision then please contact us to discuss your tax planning on 01332 365855. firstname.lastname@example.org
As always we must remind you that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.