Many small business owners consider paying their wife a salary in order to save the business tax. This is legal and is a way for business owners to extract money from the company in a tax efficient way.
However, if you do this then you have to make sure that your wife does do some work for the company such as answering calls or emails. If she does not then her job role could be challenged by HMRC.
Before employing your wife or anyone else you must ensure that your company is registered as an employer with HMRC. It is also important that you do a formal job contract for your wife in case 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 wife for working for my business?
Family members who live in the family home and work for your business, such as your wife, do not qualify for the national minimum wage.
However, if you employed your adult children who live at a different address then they would need to be paid at least the national minimum wage. In the 2023/24 tax year the national minimum wage is £10.42 per hour for those over the age of 23.
What are the tax advantages for the company?
If your wife has another job and has already used up her personal tax allowance then there are not many more tax advantages to also paying her a wage from your company. However, if your wife is unemployed then it would be advantageous to pay your wife her personal tax allowance of £12,570 per year (in the 2023/24 tax year). The company would then save 19% corporation tax. Any income you pay your wife over the £12,570 she will have to pay 20% income tax on.
Should I set up my wife a pension through my company?
If you are employing your wife, then another tax-efficient way to extract money from the business is to contribute to a workplace pension for your wife. 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 wife an income or setting up a workplace pension for her, then get in touch with us today. Book a no-obligation meeting online with one of our financial advisers or call us on 0117 973 0500. Meetings can be at your home address, our Clifton office or on zoom.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
