Employing your spouse
The benefits of transferring income to your spouse.
At AVASK we can advise businesses on the possible tax advantages of employing your spouse in the firm. Here is an overview of some of the issues you may encounter:
When considering the overall tax position of your family, it is worth considering 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/National Living 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.
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 Starter Checklist should be prepared with the Statement A (“This is my first job since last 6 April …”) ticked. You may then pay up to the Lower Earnings Limit for employees' national insurance (£118 per week for 2019/20) 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 £118 and £166 per week will protect an entitlement to basic state pension and other contributory benefits without incurring an actual national insurance liability;
- a salary between £166 and £962 per week is subject to employee’s national insurance at 12% and employer’s national insurance at 13.8%;
- the income tax position depends on your spouse’s personal circumstances;
- the amount of salary exceeding £962 a week is subject to employee’s national insurance at 2% and employer’s national insurance at 13.8%, without upper limit;
- employee’s (but not employer’s) national insurance contributions stop when the employee reaches state pension age.
Please give us a call if there are any points you would like to discuss.