Employing your spouse can offer various benefits for both your business and your household. In this article we will discuss some potential tax benefits.
Tax Deductions
When you pay your spouse a salary as an employee of your business, you can deduct their salary as a legitimate business expense. This reduces your taxable income, which can lead to a lower corporation tax liability.
Utilizing Personal Allowances
Each individual in the UK is entitled to a tax-free personal allowance (the amount you can earn before paying income tax). By employing your spouse, you can help them utilize their personal allowance, which means they can earn a certain amount of money tax-free. This can reduce the overall tax liability for your household.
National Insurance Contributions
Lower National Insurance Contributions: If your spouse earns below the National Insurance threshold, they may pay lower or no National Insurance contributions. This can lead to cost savings for both your business and your spouse.
Pension Contributions
Employing your spouse allows both of you to make pension contributions. Contributions made by your business into your spouse's pension can be tax-deductible, providing potential tax relief.
Dividend Income Splitting (for Limited Companies)
If you and your spouse are shareholders in a limited company, you can allocate dividend income in a tax-efficient manner. This can help in minimizing your overall tax liability as a household. However, the tax rules surrounding dividend income can be complex, so professional advice is essential.
Family Business and Inheritance Planning
Employing your spouse can be a part of a broader family business and inheritance planning strategy, allowing for more flexibility and tax efficiency in managing the transfer of assets and wealth within the family.
It's important to emphasize that while employing your spouse can offer tax benefits, it must be done in a legitimate and transparent manner. Both you and your spouse must adhere to employment laws, maintain accurate payroll records, and ensure that their salary and benefits are reasonable and commensurate with the work performed.
To make the most of these tax benefits and ensure compliance with changing tax laws, it's advisable to consult with a qualified tax advisor or accountant who can provide personalized guidance based on your specific situation and the latest tax regulations.
Get in touch