When considering the overall tax position of your family, it is worth considering employing your spouse or civil partner in your business.
It is likely to show a tax saving if your spouse or civil partner has unused personal allowances or pays tax at a lower rate than you do.
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 or civil partner (and therefore affordable for your business)
- the National Minimum Wage/National Living Wage regulations are likely to apply
As well as a salary, you may be able to pay contributions to a pension arrangement for your spouse or civil partner. These should not be taxable on your spouse or civil partner 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 or civil partner 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 Lower Earnings Limit for employees' national insurance (£123 per week for 2024/25) 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 or civil partner, you should consider the following points:
- a salary between £123 and £242 per week will protect an entitlement to basic state pension and other contributory benefits without incurring an actual national insurance liability
- a salary between £242 and £967 per week is subject to employee’s national insurance at 8%
- the income tax position depends on your spouse or civil partner’s personal circumstances
- the amount of salary exceeding £967 a week is subject to employee’s national insurance at 2%
- a salary of £175 or more is subject to 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.