Employing your spouse

At Chalmers HB we can advise on the possible tax advantages of employing your spouse in the firm. Here is an overview of the issues.

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 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 between £116 and £162 per week will protect an entitlement to basic state pension and other contributory benefits without incurring an actual national insurance liability
  • a salary between £162 and £892 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 £892 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.

If you are considering employing your spouse in your business, Chalmers HB can advise you of the tax advantages and other implications.

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Tel: 01749 685000

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Chalmers HB
20 Chamberlain Street
Wells
Somerset
BA5 2PF


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Chalmers HB Limited, Registered in England, Registered number 4233537, Registered Office: 20 Chamberlain Street Wells Somerset BA5 2PF. Chalmers HB Audit Limited, Registered in England, Registered number 9739736, Registered Office: 20 Chamberlain Street, Wells, Somerset BA5 2PF.