Employing your spouse

When considering the overall tax position of your family, it is worth considering if you can justify employing your spouse in your business.

This is a means of transferring income from you to your spouse. It is likely to show a tax saving if your spouse has unused personal allowances or pays tax at a lower rate than you do.

In order to justify a salary, the following points must be borne in mind:

  • The level of salary must be commercially justifiable
  • The salary must actually be paid to your spouse (and therefore affordable for you)
  • The national minimum wage regulations are likely to apply

As well as a salary, you may be able to pay premiums for a special pension arrangement for your spouse. These should not be taxable on your spouse and should save you tax as a business expense.

It may also be possible to provide your spouse with a 'company car', which should not give rise to any tax charge if the combined annual salary and notional benefit-in-kind is below £8,500, although again the need for commercial justification should be borne in mind.

All the above considerations apply equally to an unmarried partner or indeed to any other individual.

Administering a salary

If your spouse has no other employment, a form P46 should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the primary threshold for employees national insurance (£153 per week for 2014/15) without any further formality.

If you already have a PAYE scheme for other employees, or don't mind setting up a scheme for your spouse, you should consider the following points:

  • A salary between £111 and £153 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
  • A salary between £153 and £805 per week is subject to employees' national insurance at 12% and employers' national insurance at 13.8%
  • The income tax position depends on your spouse's personal circumstances
  • The amount of salary exceeding £805 a week is subject to employees' national insurance at 2% and employers' national insurance at 13.8%, without upper limit

Please contact us if there are any points you would like to discuss.