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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, or you may be required to enroll them in an auto-enrolment pension arrangement. 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, the starter form (previously P46) should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the Lower Earnings Limit (£113 for 2017/18) without any further formality, provided that you have no other employees.

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 £113 and £157 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
  • A salary between £157 and £866 per week is subject to employees' national insurance at 12% and between £157 and £866 employers' national insurance at 13.8%
  • The income tax position depends on your spouse's personal circumstances
  • The amount of salary exceeding £866 a week is subject to employees' national insurance at 2% and employers' national insurance at 13.8%, without upper limit

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