Tax Advice for Employing a Spouse

📍 Tax advantages for Employing your spouse💘📍

Clearly, you know the person well, and therefore all the concerns about trust (should) go out the window.

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”. For the majority of the working public, this figure currently stands at £12,570 (2021/22).

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, its 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 & dividends, and make use of the £2,000 dividend tax free band (2021/22), thereby reducing your overall tax bills quite considerably. Not only this, but once again, more money going into your household.

📢However, becoming a shareholder of a company can mean other rights are attached to this, so we would recommend you seek legal advice first before giving away shares.

💭Save on National Insurance costs

If you are a 'director only business' with no other employees and you pay an additional employee or spouse £8,840, the employment allowance can be claimed through the payroll at a total of £4,000 for the tax year, giving relief on Employers NI.

💭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 the normal new employee process must be followed.

To avoid any unwelcome visits/checks from HMRC; make sure that your spouse is employed to do a “proper” job within your organisation.

💭Employing a spouse could be a good tax saving 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 but it is essential that if you are thinking about taking on your husband/wife as an employee of your company that you do things by-the-book.

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.