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Employing your Spouse

When considering the overall tax position of your family, it is worth considering 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/National Living 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.

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 Starter Checklist (available from https://www.gov.uk/government/publications/paye-starter-checklist) should be prepared with the Statement A (“This is my first job since last 6 April …”) ticked. You may then pay up to the Primary Threshold for employees' national insurance (£162 per week for 2018/19) 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 £116 and £162 per week will protect an entitlement to basic state pension and other contributory benefits without incurring an actual national insurance liability
  • a salary between £162 and £892 per week is subject to employee's national insurance at 12% and employer's national insurance at 13.8%
  • the income tax position depends on your spouse's personal circumstances
  • the amount of salary exceeding £892 a week is subject to employee's national insurance at 2% and employer's national insurance at 13.8%, without upper limit
  • employee's (but not employer's) national insurance contributions stop when the employee reaches state pension age.

Please give us a call if there are any points you would like to discuss.