Mother wants me to "be a consultant" for her as way to save on income tax

Question

My mother is self-employed and I am currently unemployed.

She proposed an idea to me that I got a bit iffy about. She wants to pay me for "consulting services" -- this way she can essentially reduce her income to a point where she is paying less tax and I won't need to pay tax on the money she gives me because it will be under the minimum threshold.

In reality, I do help her every now and then with various bits (specific to her work, e.g.: translation, graphic design, software tutorials) but I would not think of it as consulting... then again, "consulting" can be open to interpretation.

I want to ask about the feasibility and legality of this.

Would I need to sign something to say that I am now a consultant / contractor for her?

EDIT:

To clarify,

1. I am unemployed because I am in the process of setting up my business. The business is not currently earning me money. Whatever money I have or will invest in the business are wholly my own.
2. I am not relying on my mother for money at the moment, in fact I often share the load when it comes to family expenses.
3. The idea here is that any money she does pay me for consultation will belong to me, as she does indeed owe me money

Answer 1

In reality, I do help her every now and then with various bits (specific to her work, e.g.: translation, graphic design, software tutorials) but I would not think of it as consulting...

But you are consulting for her, and you should be paid for your work.

EDIT: you can either bill her for hours worked, or she can put you on retainer, where she pays you the same amount every month, and sometimes you work a little, and sometimes a lot.

Answer 2

You can, but there are implications. Either:

You are self-employed. You must register with HMRC as self-employed and fill in a self-employed tax return and possibly also a self-employed National Insurance return. You must keep self-employed accounts.

or

You are an employee. Your mother must register as an employer with HMRC and operate a PAYE scheme. Your mother must make statutory deductions for income tax and National Insurance, and must pay employer's NI contributions. Your mother must have employer's liability insurance. As a family member, though, you're exempt from the National Minimum Wage.

Be aware that if you bill your mother on a self-employed basis, and HMRC consider you are actually an employee, they can pursue any unpaid PAYE and National Insurance up to 6 years after the event. And, of course, if HMRC consider your wages or invoices a contrived expense they will look at your mother's tax returns accordingly.

If she gives you money as a gift, it will be out of her taxed income, but it won't count as income for you. Provided she survives for 7 years it will also not be liable for Inheritance Tax.

Answer 3

"In reality, I do help her every now and then with various bits but I would not think of it as consulting... then again, "consulting" can be open to interpretation."

To me, this indicates that you know you would be stretching the bounds of reality by accepting a paycheck from your mother. Please don't commit tax fraud. If you are paid a fair wage for the work you are doing, and that work is directly related to your mother's business (ie: you are not just sweeping the floors at home), fine.

The common test would be - would an unrelated 3rd party get the same pay rate for the work you are doing? If you didn't do something for her, would she have to hire someone else to do it? What will the IRS say if they review your file? You can pretend to us as much as you like, but they have the ability to investigate, and what they find had better match what you reported.

And as always when dealing with family and money, get everything in writing; sign contracts, make terms and conditions known in advance. This helps prove the legitimacy of your work to the IRS, and it may also reduce family strain if your mother's expectations and yours begin to deviate.

Answer 4

According to this web site: "You can only claim allowable expenses for the business costs".

What you are citing is clearly personal and thus not allowable. Can you get away with it? Probably.

What would you rather have £7,000 or £3,000? The £7k of course, right? Most people prefer more money. The £3k represents the value of the tax credit, and also includes the potential for tax evasion penalties. The £7K represents mom keeping her money, and paying taxes on it.