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 (£155 per week for 2015/16) 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 £112 and £155 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability
- A salary between £155 and £815 per week is subject to employees' national insurance at 12% and between £156 and £815 employers' national insurance at 13.8%
- The income tax position depends on your spouse's personal circumstances
- The amount of salary exceeding £815 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.