Paying myself a salary

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    Paying myself a salary

    I have a young child and - were I in paid employment, instead of managing the properties, would be eligible for the new 30 hours of childcare funding. I have spoken to HMRC (numerous times), and after speaking to three people who didn't know their arse from their elbow, I finally got through to someone who told me that income from land and property does NOT make me eligible for the funding (despite the fact I obviously do work for the business).

    I asked her if I were to set myself up as self-employed and paid myself a salary from the property income, in order to meet their criteria (income must equal 16 hours at minimum wage per week), would that make me eligible and be OK? She said yes, that would be fine.

    It seems a bit too simple. I am in the process of setting myself up as self employed anyway for some freelance work I do, but this alone is unlikely to regularly meet their criteria of 16 hours' work per week (£115 per week). Would it be OK to set myself up as the property portfolio manager (or similar grandiose title!) and pay myself a salary for this? Obviously I would still pay income tax on it. Is there anything else I haven't considered?

    (Presumably I couldn't then claim this salary as an allowable expense for property management?!)

    I am so keen to do the "right thing" and make sure everything is rigorously above board, but I also don't want to shoot myself in the foot by not claiming childcare which would actually allow me to focus on my work more successfully.

    I think you're going to struggle with this arrangement.

    Assuming your property investment business is in (or partially in) your own name - you can't employ yourself.
    You can set up an arrangement that looks like employment, but it would be a fiction and you'd probably get found out.

    I have no idea about the criteria for childcare funding (sorry), but there are a number of instances where income from property (and other) investment is excluded from income calculations - mortgage eligibility forn example.
    A rule of thumb seems to be that if it suits you, it's not allowed, and if you'd be better off if it was allowed, it isn't.

    If your property was held by a business, you'd be able to remunerate yourself differently, but chances are that income from dividends or interest is probably also excluded.

    But no one can employ themselves.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


      Erm, whilst it may not change the practicality of the situation, the above isnt strictly true (unless I'm misunderstanding what you mean jpk).

      If you set up a limited company, the company and the individual are seperate legal entities. The limited company has one (or a number) of directors, who can absolutely be paid a salary by the company, of as much or as little as you like, of a fashion. This is the whole premise of managed service companies. The general way this works is that the director will pay themselves enough "income" to hit the NI threshold, then pay the rest in dividends (much more tax efficient).

      The issue here is that the process of setting up a limited company (easy) and transferring the assets into it without significant outlay (much more difficult) is likely to outweigh any benefits cost wise.

      If you do it via some other mechanism than a limited company then you would struggle I agree.
      Any posts by myself are my opinion ONLY. They should never be taken as correct or factual without confirmation from a legal professional. All information is given without prejudice or liability.


        The problem with paying salary as a director (which I agree is possible) is that it's difficult to make it a paid by the hour arrangement, which is needed for the purpose in this case.

        It's possible, which is why I mentioned it (possibly not as clearly as I intended, so thanks Mr Shed) but not as simple as it might be.

        16 hours a week us a lot of management of property.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


          Why not pay yourself to do childcare so as to be eligible for the childcare funding. It is nonsense. And it is an attempt to steal the tax I pay.


            I have to say that I think thats grossly unfair and probably borders on breaching the rules of posting on this forum.

            If someone is self employed, and chooses therefore to take the risk of being solely responsible for their own employment (in this case via property management), and can do so in such a way to allow them some entitlement to benefits that the rest of the working population get, then fair play. Its hardly some glorious rosy garden being self employed, especially via the limited company route (which is reasonably costly), so I wouldnt begrudge someone claiming the entitlement that is legally theirs, if in fact it is in such a fashion where it is legally theirs.

            The OP clearly isnt trying to do something untoward.

            PS - your issue is with the government not the OP, there is a huge difference between tax evasion (or stealing in your description) and being tax efficient. If you have an issue with legal policy, take it up with them, not the OP for using it (or seeking to).
            Any posts by myself are my opinion ONLY. They should never be taken as correct or factual without confirmation from a legal professional. All information is given without prejudice or liability.


              It may be simpler to get a half day job doing book keeping for an estate agent ?


                Thank you all, this is really helpful, and pretty much what I thought. I have previously investigated setting up a limited company, but as this would require transferring the assets (the properties) into the limited company, and because they were bought in London pre-2012, there would be a vast amount of capital gains tax to pay, so this isn't really feasible for me.

                To answer the (understandable) question, no of course it doesn't take me 16 hours a week to manage the properties (in a good week!), but the government's criteria is *equivalent* pay to 16 hours' minimum wage per week. So - for example - if I do 4 hours of my freelance work a week at £40 per hour, I meet the criteria. This involves being self-employed. Despite earning the same amount, or more, from the properties, I would not qualify for the childcare, as property income is exempt (unless I set up the aforementioned limited company).


                  There's an anomaly in how renting property is treated which leads to all kinds of unfairness (but hey we're landlord and, therefore, who cares?)

                  Rent is seen as investment income, which is passive - and why it doesn't count for income and you don't need to be self employed to do it. But there's an active element which is ignored, as we're running a business as well - try "passively" getting a central heating system working in October.

                  If the only requirement you're short of is employment, I'd set up a loss making company to pay you to do freelance work that's nothing to do with your property - but I'd guess it's more complex than that in real life, and the risk of committing benefit fraud would concern me - otherwise everyone would be doing it.
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


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