Tax Advice for Employing a Spouse

At first, the idea of giving a role in your organization to your husband or wife might not seem particularly appealing. Working in such close proximity to your partner, could put a strain on your relationship.

When you begin to take a deeper look into the consequences of such an arrangement however, perhaps it isn’t the worst idea after-all…

Clearly, you know the person well, and therefore all the concerns about trust (should) go out the window – not to mention the, sometimes considerable, costs of a long, drawn-out recruitment process.

From a financial point-of-view, there are certain benefits that you can achieve through employing a spouse. Let’s take a look at some of them now;

 

Use up your Tax Allowance!

 

Almost everyone living in the UK is entitled to an Income Tax Allowance; “the amount of income you can receive each year, without having to pay tax on it” (Source: HMRC). For the majority of the working public, this figure currently stands at £10,000.

By employing a spouse, you can make sure that your partner is using up all of this non-taxable income. If they do a job for free, pay them! After-all, it’s money going into your household – that isn’t getting taxed. Just think; how much would it cost to employ a non-family member to do the same job?
 
Higher Rate Business – Split your profits

 On a similar note; directors of a business which pays a higher rate of tax can also benefit from taking on a spouse, by making them “more than just an employee.”

If your spouse were to become a shareholder in the company, for example, “you can pay yourselves a mixture of salary/bonuses, benefits, and dividends, thereby reducing your overall tax bills quite considerably” (Source: Tax Insider). Not only this, but once more this in more money going into your household.

However, employing a spouse is not as easy as this. Before doing so, you must make sure you are aware of all your duties with regards to the law.
 
Don’t get caught out!

It is important that your spouse is treated like a “normal” employee. Just because you are in a personal relationship with them, it doesn’t mean you can exploit them for your own gain.

The National Minimum Wage rules therefore still apply, and your spouse must actually be paid what they are owed (and are thus affordable to you). Just like with a normal employee, if your spouse is not involved in any other paid employment, a P46 form must be filled out.

To avoid any unwelcome visits/checks from HMRC; make sure that your spouse is employed to do a “proper” job within your organization. If your 59 year old wife is employed to operate heavy machinery, for example, it may rouse unwanted suspicion from the tax man.
 
Employing a spouse is a good idea

 All in all, employing a spouse can often be a worthwhile venture for your business. There are many tax benefits (some listed above), that can be realised from doing so.

However, it is essential that if you are thinking about taking on your husband/wife, you do things by-the-book. One quick tip; if you pay them in cash, you may struggle to justify your activities should HMRC come knocking.

If you would like to find out more information about employing a spouse – or employment in general – check out the PAYE + Payroll section of our website.

Alternatively, get in touch with us at Cooper Curtis today on 01926 333 243 and we’d be happy to help…

Please note, all our content is for general guideline only, every case is different and we would recommend speaking to us before taking any action as a result of the content. The content was correct at the time it was published.