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, or you may be required to enroll them in an auto-enrolment pension arrangement. 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, the starter form (previously P46) should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the Lower Earnings Limit (£113 for 2017/18) without any further formality, provided that you have no other employees.
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 £113 and £157 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
- A salary between £157 and £866 per week is subject to employees' national insurance at 12% and between £157 and £866 employers' national insurance at 13.8%
- The income tax position depends on your spouse's personal circumstances
- The amount of salary exceeding £866 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.