Advantages of paying wages to your wife/husband etc

Should you pay wages to your wife/husband/partner/children to save tax? Your spouse/civil partner may have no income at all, and almost certainly your children don’t. This means they are wasting their tax free personal allowance of about £12,500 every year. Even children are entitled to a personal allowance!

Let’s say you pay your wife wages of £9,000 per year. If they have no other income they usually pay no tax or national insurance on that. Also you may be able to reduce your business profits and tax.

If you pay just 20% income tax and 9% Class 4 National Insurance on your business profits this could save you about £2,600 on each salary. And how many children do you have to pay wages to?

Also, try to pay wages above the NI lower earnings limit for the year. This is about £6,500. This will help towards securing a full state pension.

Pitfalls of paying wages to your wife/husband etc 

STOP! It’s not quite that simple. To pay wages to your wife/husband/partner/children like this you need to follow the following rules…

    • It must be for work actually done. Now it’s going to be tough to argue your 2-year-old son is working for you but many spouses/civil partners do work and mature children may also help out. Maybe they do the books, answer the phone, stuff envelopes, etc. Keeping out of your way so you can get on doesn’t count, as valuable as it may be. Draw up a list of their responsibilities to help your case. At the moment they might do it for free, maybe because it’s a family business, but they can be paid for it. If you make your spouse a director, all the responsibilities imposed by Company Law by taking on this role must be worth something. You can also pay a family member a wage where you have property that you rent out and the individual manages the properties.
    • It must be a reasonable wage rate appropriate with what they actually do. How much would you pay someone unrelated to do the job? The national minimum wage level is at least a good place to start but pay a higher wage if you can justify it. 
    • You must actually pay the wages. It’s no good the accountant just putting it through the accounts at the end of the year. Pay it, ideally through the bank rather than cash so that it’s easy to prove it’s been paid. Also, don’t forget to record it in your accounting records.
    • Children under the minimum school leaving age can only work a limited number of hours per week and local by-laws may restrict them further.

    • You must comply with any PAYE procedures as you would do for normal staff, including RTI and Auto Enrolment.

We can help you decide whether or not it is reasonable to pay wages to your wife/husband/partner/children. We can also run the payroll for you so that you comply with all the HMRC RTI payroll regulations. Contact us for more details, or get an instant quote for payroll, accounts, tax and more on our website.