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HMRC internal manual

Business Income Manual

Subcontractors: expenses: payments to spouse, civil partner or relative

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Expenditure must be wholly and exclusively for the purposes of the trade

A deduction from trading profits is not available for expenditure not incurred wholly and exclusively for the purposes of the trade. Where there is both a personal and a business relationship between the payer and the recipient, the expenditure may fail this test.

You should consider all the facts and circumstances of a particular case and allow a deduction where it is justified by the facts. Factors which may be relevant in considering a case where payment is made to a spouse or civil partner or other relative include:

  • whether the subcontractor owns or rents business premises separate from the family home
  • where the spouse, civil partner or relative carries out their duties
  • the nature of the duties performed, and
  • the amount of the payment

Where a deduction is claimed for payment at the commercial rate in respect of substantial duties performed at premises away from the family home, it is likely that the deduction is allowable.

Conversely, where payment at a non-commercial rate is made in respect of minor services performed at the family home, a deduction is unlikely to be justified.

Between these two extremes there are a variety of circumstances where the conclusion turns on a detailed examination of all the facts.

The general issue of wages that are not wholly and exclusively for the purposes of the trade is discussed at BIM37700 onwards. Specific discussion of the wages of spouses or civil partners is at BIM37735.

Other common expenses

For guidance on the allowability of other common expenses of subcontractors see:

  • BIM66210 - travelling and subsistence expenses
  • BIM66215 - expenses on use of home as office