At HJS Accountants we can advise businesses in the Southampton area 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 Lower Earnings Limit for employees' national insurance (£118 per week for 2019/20) 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 £118 and £166 per week will protect an entitlement to basic state pension and other contributory benefits without incurring an actual national insurance liability
  • a salary between £166 and £962 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 £962 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 in the Southampton area and are considering employing your spouse in your business, HJS Accountants can advise you of the tax advantages and other implications.

Southampton Office

12-14 Carlton Place
Southampton
Hampshire
SO15 2EA

Tel: 02380 234 222

Winchester Office

6 Charlecote Mews
Staple Gardens
Winchester
SO23 8SR

Tel: 01962 842000

Reading Office

3 Richfield Place
Richfield Avenue
Reading, Berkshire
RG1 8EQ

Tel: 0118 9511 115

London Office

90 Long Acre
Covent Garden
London
WC2E 9RZ

Tel: 0203 470 0777