If your spouse or civil partner does real work in your business, paying them a salary for it can reduce the overall tax paid by your household. Their pay is a business cost, and they can use their own personal allowance and basic rate band.
The pay must reflect the work actually done at a commercial rate. HMRC can disallow wages that are out of line with the job, so the arrangement needs to be genuine and documented.
How the saving arises
Wages paid to your spouse reduce your business profits. For a company, that saves corporation tax at between 19 percent and 25 percent, depending on profits. For a sole trader or partnership, it saves income tax and Class 4 National Insurance at your own marginal rate.
If your spouse has little or no other income, a salary up to the personal allowance of £12,570 can be received free of income tax for 2026/27. Where you are a higher rate taxpayer, shifting income in this way can produce a meaningful saving.
Setting the right pay
The salary must be paid wholly and exclusively for the business. Ask what you would pay someone else to do the same job for the same hours. Bookkeeping, invoicing, answering the phone, managing social media and running the office are all common roles.
If your spouse is an employee, the National Minimum Wage applies. From 1 April 2026, the rate for workers aged 21 and over is £12.71 an hour, so a salary of £12,570 needs to be supported by around 989 hours of work a year, or roughly 19 hours a week. A director who has no employment contract is not entitled to the minimum wage, which gives more flexibility where your spouse is a director of your company.
State pension and National Insurance
For 2026/27, pay at or above the lower earnings limit of £6,708 counts towards a qualifying year for the state pension. If the pay is below the primary threshold of £12,570, your spouse pays no employee National Insurance but still gets the credit. This is valuable for anyone who would otherwise have gaps in their record.
Employer National Insurance is 15 percent on pay above £5,000. The employment allowance of £10,500 can cover this, but it is not available where the only employee paid above £5,000 is a director. If your spouse is a second director, or there are other employees, the allowance is usually available.
A worked example
A company owned by Mark pays his wife Rachel, who has no other income, a salary of £12,570 for 2026/27. She keeps the books, deals with suppliers and manages the office for 20 hours a week. The company has other staff and claims the employment allowance.
- Income tax for Rachel: nil, as it is within her personal allowance
- Employee National Insurance: nil, as it is at the primary threshold
- Employer National Insurance: £1,135.50, covered by the employment allowance
- Corporation tax saved at 19 percent: £2,388.30
- Rachel builds a qualifying year for her state pension
If the company's profits are in the marginal relief band, the saving rises to an effective 26.5 percent, or £3,331.05.
Pensions and dividends
A company can also make pension contributions for an employed spouse. These are generally deductible and free of National Insurance, provided the total package is reasonable for the work done.
Some couples also hold shares and take dividends. An outright gift of ordinary shares with full rights between spouses is generally effective for tax, following the Arctic Systems case. Gifts of shares with restricted rights, or arrangements where income comes back to the giver, can be caught by the settlement rules. Take advice before changing your shareholdings.
Records to keep
- A written contract or job description setting out duties and hours.
- Timesheets or a diary showing work done.
- Payment into a bank account in your spouse's own name.
- Payroll records, with the salary reported through Real Time Information on or before each payday.
Paying a salary from the business into a joint account, or not paying at all and simply recording it, invites challenge.
What to do
- Agree the role, hours and an hourly rate you could justify to an outsider.
- Check whether the minimum wage applies, which depends on whether your spouse is an employee or a director without a contract.
- Consider a salary of at least £6,708 to secure a state pension qualifying year.
- Set up payroll and pay into your spouse's own account.
If you would like us to work out the right figures for your household, book a free call.
