We look at HMRC’s stance on salary payments to partners’ spouses and tax concessions on late night taxis.

The commerciality of salary payments to the spouse of a partner in a professional firm has recently come under attack by HMRC. This type of payment is typically of a level similar to the annual personal allowance, so if the partner’s spouse does not have any other assessable income, there will be no tax or National Insurance liability arising on this income.

HMRC’s view is that the payment is an appropriation of the partner’s income that would otherwise be subject to tax at 41%. The debate is whether the partner’s spouse does in fact carry out any role for the firm, and some of the duties questioned by HMRC are:

  • secretarial duties, including answering the telephone and making appointments

  • hosting occasional dinners at a partner’s private residence
  • attending corporate functions.

There are additional concerns about the flexibility of partners’ spouses’ roles and their availability at the firm’s request. HMRC also questioned the fact that such employees are not required to keep detailed diaries of their movements.

We understand from HMRC that there is a national review currently being undertaken in relation to this matter. If your firm pays a salary to partners’ spouses or has recently had an enquiry, we can advise you on this matter.

Late night taxi concessions

We have seen a worrying change in HM Revenue & Customs’ (HMRC) interpretation of the exemption for the provision of a taxi to get home when an employee is required to work late. For the exemption to apply, HMRC must be satisfied that:

  • the employee is occasionally required to work late, i.e. until after 9pm, but
  • those occasions are neither frequent, i.e. no more than 60 occasions in a tax year, nor regular, i.e. there is no predictable pattern, and
  • at the time of travel, public transport has stopped, or it would not be reasonable to expect the employee to use public transport.

We have clients being challenged on the basis that the exemption is not available after the first occasion on which a late night taxi has been provided. HMRC is taking the stance that if, say, the employee works late every night for a week on a specific project, then only the taxi on the first night falls within the exemption. This does not seem to be in line with HMRC’s 490 Booklet (Employee Travel), which gives examples of workers for whom late night working is a regular feature, such as "people employed in restaurants, clubs and pubs whether on a shift basis or not, or those on regular call-out duty".

HMRC is also challenging that public transport is available after 9pm, although this is not a condition of the exemption. If the employer considers that, for some other reason, it would not be reasonable for the employee to use public transport, the exemption should still apply.

If you are challenged on your late night taxi policy, do not just accept HMRC’s view, as its current approach is not free from doubt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.