Lee Sharpe looks at distributing business income around the family – with pointers on how to do it and how not to do it.
A quite recent tax case involved profits being distributed amongst family members, and it did not go at all well for the taxpayer. This article looks at the principles and why the taxpayer in that case came unstuck.
Principles
It is largely acceptable for a business to pay a spouse, sibling, child, etc. for work that they do. To be tax-deductible, however, the cost must have been incurred ‘wholly and exclusively’ for the purposes of the business. Basically, the relative must have done valuable work or provided a valuable service to warrant payment at that scale.
So, one cannot pay one’s son or daughter £3,000 a month for an hour’s paper filing every week, and expect to reduce the business’s
