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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 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 A (“This is my first job since last 6 April …”) ticked. You may then pay up to the Primary Threshold for employees' national insurance (£149 per week for 2013-14) 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 £109 and £149 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
a salary between £149 and £797 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 £797 a week is subject to employees’ national insurance at 2% and employers’ national insurance at 13.8%, without upper limit
employees’ (but not employers’) national insurance contributions stop when the employee reaches state pensionable age.

Please give us a call if there are any points you would like to discuss.