Many small business owners consider paying their spouse a salary in order to save the business tax. This is completely legal and is a way for business owners to extract money from the company in a tax efficient way.
It is important, however, that your spouse contributes to the running of your business in some way, should that be through strategic work or answering phone calls or emails. Failure to ensure this may lead to HMRC challenging her job role.
Before employing your spouse or anyone else you must ensure that your company is registered as an employer with HMRC. It is also important that your spouse is provided with a formal job contract, protecting you in the case that HMRC need to see any records. The amount of work that they do should be reflected in their salary.
How much do I need to pay my spouse for working for my business?
Family members who live in the family home and work for your business, such as your spouse, do not qualify for the national minimum wage.
However, in an instance whereby you employ your adult children who live outside the family home they would need to be paid at least the national minimum wage. In the 2024/25 tax year the national minimum wage is £11.44 per hour for those over the age of 21.
What are the tax advantages for the company?
If your spouse has another job and has already used up their personal tax allowance, then there are not many more tax advantages to also paying them a wage from your company. However, if your spouse is unemployed then it would be advantageous to pay them their personal tax allowance of £12,570 per year (in the 2024/25 tax year). The company would then save 19% corporation tax. Any income you pay your spouse over the £12,570 will be subject to 20% income tax.
Should I set my spouse up with a pension through my company?
If you are employing your spouse, then another tax-efficient way to extract money from the business is to contribute to a workplace pension. Any pension which is paid as part of a workplace scheme is tax-deductible for the company.
Book a no-obligation meeting
Tax rules and allowances in the UK are complex and change frequently. If you are a business owner and are considering paying your spouse an income or setting up a workplace pension for them, then get in touch with us today. Book a no-obligation meeting online with one of our financial advisers.
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