Getting paid to work on your own home

[Setch]

I am a self employed carpenter/ handyman, and live with my wife and two children.

I have been renovating my bathroom over the last couple of years, doing work sporadically around customer jobs, childcare needs etc.

Recently my wife decided (not unreasonably) that this had been going on long enough, and I should focus on the bathroom full-time until it's finished.

This raises a question to which I can't find a satisfactory answer. Can my wife pay me to work on my own home? Were I not doing the work we would have to pay somebody else to do it, and if I someone was doing it, I would be out working, earning part of the money to pay them.

My reason for considering this it is to ensure my earnings don't fall below a certain threshold which entitles me to tax relief on my pension.

My worry is that this will somehow fall foul of the taxman, even though everything appears to be (and is intended to be) on the straight and narrow.

Any thoughts, or even better, experience amoung the forumites?

 

[Geoff_S]

Careful you don’t have to pay tax on the “income”.

 

[DBC]

I’m no expert but that doesn’t sound right to me. If you can do that - and I would love it if you could - then my wife owes me a fortune.

 

[Sandyn]

Ask the tax office. They are normally very helpful, assuming you can ever get anyone to speak to. Tell them the reason for doing it. I always found it's best to be 100% up front with them.

 

[Doug71]

I'm sure you can as I have done it, I would speak to your accountant.

 

[Myfordman]

I guess you need to weigh up the extra tax due on the income paid to you by your wife compared to the loss of tax relief on your pension contributions.

 

[powertools]

To be honest if you have already spent over 2 years renovating your family bathroom I am surprised that you still have a wife let alone one who would pay you.

 

[niall Y]

I am a self employed carpenter/ handyman, and live with my wife and two children.

I have been renovating my bathroom over the last couple of years, doing work sporadically around customer jobs, childcare needs etc.

Recently my wife decided (not unreasonably) that this had been going on long enough, and I should focus on the bathroom full-time until it's finished.

This raises a question to which I can't find a satisfactory answer. Can my wife pay me to work on my own home? Were I not doing the work we would have to pay somebody else to do it, and if I someone was doing it, I would be out working, earning part of the money to pay them.

My reason for considering this it is to ensure my earnings don't fall below a certain threshold which entitles me to tax relief on my pension.

My worry is that this will somehow fall foul of the taxman, even though everything appears to be (and is intended to be) on the straight and narrow.

Any thoughts, or even better, experience amoung the forumites?

This is something that has puzzled me over the years. When I first started out as a carpenter, many years ago I was under investigation by the tax office. I suppose the reason was that I wasn't earning enough. The tax officer gave me a really hard time about work I might have done to my own home. What I gathered from this was that any work that I had done would have been taxable. I suppose there has to be a cut-off point - I mean doing work on your own home at the weekend is probably OK.
This then throws up questions about TV programmes such as Grand Designs. How do, tradesmen take time off work to build their own home without falling foul of the tax office?
Can't see that your partner, paying you to do work, should present a problem. my partner and I did this to allow us to finish work to our home, prior to moving house. After all the mortgage payments still had to be covered. The payment was passed through my books

 

[PDW125]

Tax office don’t care where your income comes from, they only care if you’ve purchased stock through the business and used it on your own house as it offsets your income or potentially you’ve claimed VAT back that has not been recharged elsewhere (assuming you are VAT registered).

If your wife is paying you day rate for work and it goes through your books, then it doesn’t matter for income tax purposes.

 

[Terry - Somerset]

The taxman is interested in the income declared upon which tax is paid. If, even as a tradesman, you work on your own home, you do not normally generate an income and hence pay no tax.

The argument that could be made is that by working on your own home you are increasing its value upon which some tax should be paid - I doubt (although not an expert) that the taxman would seek to calculate a notional income.

If working on a "business" property (eg: a buy to let) the taxman would get the benefit of tax on the rental income and possibly increased capital gains tax when/if sold. Normally there would be no tax payable on your own labour.

The taxman does not care where your income arises. If your wife pays you to finish the bathroom, the income declared would be treated as any other income upon which tax would be paid.

Having written the above the taxman has a fair idea of the income they expect different trades to generate - eg: cab drivers, electricians, plumbers etc etc.

If your income falls below their expectation they may ask further questions or launch an investigation. I would not be concerned about this - income could fall in a single year for any number of reasons - ill health, holiday, moving house etc etc.

I do not understand how your pension arrangements work - but would be somewhat surprised if the pension tax benefits foregone by having a lower income would be greater than the additional tax payable on the income.

 

[Doug71]

I used to be part of the family business and I was employing the family business to do renovations on my house. It didn't last long as one member of the family thought I should still be paying the business for my own time when I was working on my house till 11pm at night or when I was working on it all weekend. It didn't end well.

I have been trying to remember when I have paid myself as my current business and I actually think it has only been for materials which I bought through the business then I have personally bought off the business to keep things straight

 

[redhunter350]

Setch , only one answer here— speak to your accountant, that’s what you pay them for ! If you don’t have one get one it’s the best money you will spend running your business.
I was self employed for 40 + years and our accountant was worth every penny,

 

[Cooper]

Ask the tax office. They are normally very helpful, assuming you can ever get anyone to speak to. Tell them the reason for doing it. I always found it's best to be 100% up front with them.

In my experience you'll be lucky to get through to someone on a helpline who knows the answer to anything slightly unusual that isn't on their online cribsheet. While you wait 30 min to get through you will be invited to look on their website and if you are anything like me you will end up none the wiser.

I think the point above that any income you declare for pension purposes will be liable for tax would be true.

As your wife will already have paid tax on it, if you are both basic rate payers 40% of the income earned to pay you will go in tax and if either or both are higher rate, considerably more.

 

[bryan267]

The pension question is easy. You are entitled to contribute £3,600 pa without earnings, so if your income falls below £12,570 and you no longer pay tax you can still get tax relief on contributions up to a net payment of £2,880pa or £240 per month. Having the wifes payments to you is fine but i wouldnt declare it for tax. She is allowed to give you money and your allowed to take time off work to do the house. If your worried about your earnings going below the tax threshold then i presume your not VAT registered

 

[--Tom--]

This is something that has puzzled me over the years. When I first started out as a carpenter, many years ago I was under investigation by the tax office. I suppose the reason was that I wasn't earning enough. The tax officer gave me a really hard time about work I might have done to my own home. What I gathered from this was that any work that I had done would have been taxable. I suppose there has to be a cut-off point - I mean doing work on your own home at the weekend is probably OK.
This then throws up questions about TV programmes such as Grand Designs. How do, tradesmen take time off work to build their own home without falling foul of the tax office?
Can't see that your partner, paying you to do work, should present a problem. my partner and I did this to allow us to finish work to our home, prior to moving house. After all the mortgage payments still had to be covered. The payment was passed through my books

More likely they were checking to see if your costs were inflated by buying additional materials for home use and putting them as a business expense, reducing your profit and therefore tax liability, but without generating a business asset.

 

[MikeJhn]

I built a garden office for my business use, I was advised by the tax office that all materials could be put through my books, but not my time as I was not a self employed carpenter, but they did advise me on the percentage allowance against my home I could claim and the depreciation, My wife did employ me in a Professional capacity and that was invoiced to her and paid and went through the books, what I am trying to say is talk to your tax office they are there to help, they are not Shrek.

 

[RobinBHM]

This raises a question to which I can't find a satisfactory answer. Can my wife pay me to work on my own home? Were I not doing the work we would have to pay somebody else to do it, and if I someone was doing it, I would be out working, earning part of the money to pay them

I would say definitely, yes

you raise an invoice, you get paid the amount on the invoice into your work account

you can then transfer from your work account to your personal account and that gets noted as "drawings" in your business accounts

that money in your account adds to your business turnover and you pay tax on it


Why would the tax man care if you want to pay income tax on money you dont have to?


The bit you need to be careful of is materials: if your wife pays you for labour only -where are the materials coming from?

 

[johna.clements]

Assuming you can not get paid by your wife to take you above the lower earnings limit to get pesion contibutions you can make voluntary payments. I think it is currently about £18 per week and you have to pay for all the weeks in the year that you do not earn enough, around about £127 per week (I think) for that year to count I understand. That works out at about £900 for the year to increase your pension by I assume 1/35th, I assume about £230 per year.

 

[Spectric]

The problem may be the wife, you as the husband are supposed to keep her happy and both work as a team so making her pay for something in a house you both live in may be seen as wrong. The other point is that if she is not working, then in effect you would be paying yourself via her but if she is working you would end up paying income tax on money that has already had PAYE deducted so just get the bathroom done and enjoy the peace now she is no longer nagging in your ear.

 

[Keith 66]

20 odd years ago we built a large extension on our house that effectively doubled its size. I was a house husband with small child. A builder mate gave us a price for the extension up to roof on, windows in stage & i did the rest.
I didnt get paid & the whole thing was done in two years.
If we had paid trades to do all that i did the cost would have doubled to the point we wouldnt have been able to afford it.
I dont think my wife would have dreamed of paying me to do it & i wouldnt expect to!