In a recent case heard by the first tier tribunal McAdam v HMRC a deduction for wages of £90 per week paid by a plumber to his wife was ruled to be excessive  and should be reduced.


Mr McAdam was a self employed plumber and heating engineer

  • He paid his wife a wage of £90 per week to look after the accounts, administration (processing orders and checking prices for parts) and answering the telephone
  • Mr McAdam told the court that his wife did most of the banking. She also took telephone enquiries and passed them on. This was in contradiction to HMRC’s notes taken at the meeting (which he had not challenged).
  • He produced,as evidence, job sheets to which his wife had pinned receipts but had not attempted to provide any other evidence to support the task she was claimed to perform.
  • HMRC had enquired into his self assessment returns for the periods between 2009/10 and 2013/14  and had asserted that :
  1. The wifes wages were not incurred wholly and exclusively for the purpose of running the business and were, in their opinion, excessive.
  2. Turnover was understated

and issued assessments for the period 2009/10 to 2012/13 including penalties

The First Tier Tribunal agreed that the wages were excessive

  • They did not believe that Mr McAdam had furnished them with any credible evidence to support the amounts paid with regard to the level of activity.
  • The tribunal considered that £1344 pa would be a more appropriate wage calculated on the basis of 3.5 hours work per week for 48 weeks at a rate of £8 per hour (which had been allowed by HMRC in their assessments)
  • They also upheld HMRC’s adjustment to turnover on the basis of presumed continuity quoting a decision in Jonas v Bamford (that an under declaration in one year will be presumed to have been repeated in other years until there is a change in situation)


Business expenses are only tax deductible :

  • To the extent that they are incurred wholly and exclusively for the purpose of the trade
  • Where they are not for the pupose of the trade they will be denied as a deduction against taxable profit
  • The principle applies to all businesses whther operating as a sole trader, partnership or limited company

Given the facts of the case and a lack of tangible evidence presented by Mr McAdam in support of the claim for wages, the tribunals decision was relatively easy to arrive at. It does provide a stark reminder that any wages paid to a spouse or partner MUST be supported by facts and be reasonable for the work claimed in order that a tax deduction is allowable.