This article explains whether you could pay wages to your wife/husband/partner/children to save tax. Your spouse/civil partner may not have any income at all, and almost certainly your children don’t. This means their personal allowance is being wasted every year. Even children are entitled to a personal allowance.
If the amount up the level at which national insurance becomes payable of £8,060 in 2015/16 was paid to your family member as wage, they would pay no tax on it and your business profits could be reduced.
Please note that 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.
If you pay just 20% income tax and 9% Class 4 National Insurance on your business profits this would save you £2,337 for 2015/16 on each salary. And how many children do you have to pay wages to?
- 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. May be 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 present they do it for free 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 on 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 commensurate with what they actually do. How much would it cost to get someone in to do that job? The national minimum wage level is at least a good place to start but a higher wage can be paid if you can justify it.
- The amount must actually be paid. 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 and record it in your accounting records.
- Comply with any PAYE procedures as you would do for normal staff, including RTI and Auto Enrolment. It may also help keep up their National Insurance contribution record even if they don’t pay any National Insurance on the salary.
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.