Employing your spouse
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 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 are 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 A ('This is my first job since last 6 April') ticked. You may then pay up to the Primary Threshold for employees’ national insurance (£162 per week for 2018-19) 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 under £162 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
- A salary between £162 and £892 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 £892 a week is subject to employees' national insurance at 2% and employers' national insurance at 13.8%, without an upper limit
All tax rates and allowances are for tax year 2018/18.
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