Employing your spouse

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. 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 B ("This is my only or main job") ticked. You may then pay up to the primary threshold for employees national insurance (£110 per week for 2010/11) 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 £97 and £110 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual National Insurance liability
◦A salary between £110 and £844 per week is subject to employees' national insurance at 11% and employers' national insurance at 12.8%
◦The income tax position depends on your spouse's personal circumstances
◦The amount of salary exceeding £844 a week is subject to employees' national insurance at 1% and employers' national insurance at 12.8%, without upper limit

Please contact us if there are any points you would like to discuss.

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