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Introduction –paying wife through limited company
When you are contracting or in business day to day, you may wonder can I pay my spouse a salary as a contractor while you work through your limited company. You may also consider can I hire my spouse as an employee and if so, can I employ my wife to reduce tax. If this is possible, when paying wife through limited company, what will the tax saving be for the business? Therefore, as a limited company contractor or small business owner, the thoughts around whether can I employ my spouse and can I pay my partner a wage in 2023/24 could arise when either:
- You have been running your company for a while.
Initial thoughts
Besides your own business owner salary (UK), a common thought is that if I can employ my spouse, then how much can I pay my wife to work for me? Notably, the question regarding can you employ your spouse will pop up quite often from limited company contractors. When it comes to can I pay salary to my wife, the good news is you can employ your partner. However, when you consider paying your spouse a salary, you will need to look at your business overall to see if this is something you would like to do.
Other initial thoughts around employing spouse (limited company) and wife salary
Can I pay my spouse as a contractor or small business owner
Many UK contractors and limited company owners will consider can I employ my wife. When you run your own business as a limited company contractor, you may also be an employee in your business. Consequently, you may take a director’s salary as a contractor and the main income generator. When we also consider can I pay my spouse a salary, if they are going to some work for your contracting company you can set up a spouse salary.
Paying salary to family members
Besides considerations around paying spouse a salary, what about putting family members on payroll? A family business will often employ members of the family of the person or persons who started the company. As a result, they will be paying a salary to family members.
Therefore, when you are a business owner, including a UK contractor, a limited company employing family members is quite common. As a result, it may be worthwhile considering paying spouse to reduce tax (UK) for your company.
Check with your accountant about hiring a spouse as an employee
You may decide to ask your accountant can I pay my spouse a salary or can you pay another family member a salary. Before you think about employing and paying your spouse a salary, you need to consider are they going to do some work for your company. If they are, you can add them to the payroll and pay wife as employee and pay a salary for the work they do. As a result of hiring your spouse as an employee, the salary costs are an expense, which will help reduce your company tax bill.
Depending on what your spouse earns, it may also be an idea to consider using the transfer of the Marriage Allowance. However, this is not suitable for everyone. Therefore, you can check the position to see if you can claim this.
What to consider in respect of can I pay my wife a salary from my company
Paying spouse a salary -are they a higher-rate taxpayer?
When we look at whether can I pay my spouse a salary, there is no real benefit in paying your partner a salary if they are already earning above the higher rate tax level (£50,270). Consequently, if your company did employ your wife, it would save Corporation Tax on the salary cost. However, your spouse would pay PAYE tax on their salary at 40%. Therefore, it would not be beneficial to pay them a salary in this case.
Paying wife through limited company -are they using up their tax allowance?
Another consideration when we think about whether can I pay my partner a wage, there is also no real benefit in paying your wife through your limited company if they already earn enough to use up their personal tax allowance. Notably, this is set at £12,570 in 2023/24.
As a result, if your company did this, it would save Corporation Tax (CT) 19% or 25% on the salary cost. However, your spouse would pay PAYE tax on their salary at 20%.
Paying my spouse a salary -is their income less than £12,570 per annum?
In contrast, when we consider whether can I pay my spouse a salary, if your spouse has no other salary or earns less than £12,570 per annum, you could pay them a salary. As a result, your company would make some tax savings. In other words, your company would save CT at 19% or 25% on the salary cost, and your spouse would receive the monthly net salary.
Considerations around employing and paying spouse a salary
Working and performing tasks for your company
Most importantly, when you look at when can I pay my spouse a salary, your partner should do some actual work for your company to justify this. For example, when you employ your wife, such tasks could be administration-type tasks, and these may include:
- Answer the phone.
- Open company mail.
- Deal with company e-mails.
- Update the company’s accounting system.
- Create invoices.
If you are paying your spouse yet they are not doing any work, HMRC may challenge the salary in the future.
Paying your spouse a salary -the National Living Wage (NLW) and National Minimum Wage (NMW)
When we consider how much can I pay my wife to work for me, you will need to pay at least the NLW or NMW if:
- If your spouse is not a director; and
- They do not have a contract of employment.
The NLW and NMW rates change on 1 April every year and are:
| 23 and over | 21 to 22 | 18 to 20 | Under 18 | Apprentice | |
|---|---|---|---|---|---|
| Apr-23 | £10.42 | £10.18 | £7.49 | £5.28 | £5.28 |
Apprentices are entitled to the apprentice rate if they’re either:
- Aged under 19
- Aged 19 or over and in the first year of their apprenticeship
How much can I pay my wife to work for me?
Putting spouse on payroll -justifying a salary for them
If you decide on paying wife through limited company is something you would like to do, how much can you justify as a salary for them?
As a business owner, when you claim expenses, they should be `wholly and exclusively’ for the purpose of the business. Notably, this rule is one of HMRC’s essential guidelines.
In a similar vein, when you are paying spouse a salary, you will need to think about what is the value of the work that they carry out for your business. Therefore, when you are paying your spouse a salary, this should be at a `commercial rate’ for the work they do for your company. To sum up, we mean here that you should consider what you would pay someone else for doing the same job as your spouse.
Paying wife through limited company -the tax bands and NI rates
In 2023/24, the tax-free personal allowance is £12,570.
National Insurance applies in 2023/24 as follows:
- Employers are required to start deducting NICs on earnings above the lower earnings limit (LEL). In 2023/24, this is set at £533 per month or £6,396 per annum. At this level, benefits will accrue for the employee’s state pension.
- The primary threshold (PT) for employee contributions is set at £1,048 per month or £12,576 per annum.
- The upper earnings limit is set at £4,189 per month or £50,270 per year.
- The secondary threshold (applicable to employers) is set at £758 per month or £9,100 per year. There is no upper earnings limit for employer NIC liabilities.
The rates for National Insurance in 2023/24 are:
- 12% employees’ NI for income between the primary threshold and the upper earnings limit.
- 2% employees’ NI for income over the upper earnings limit.
- 13.8% employer’s NI for income over the lower earnings limit for NIC Classes 1, 1A, and 1B.
The above NI rates were all increased by 1.25% during 2022/23, however the government later reverted on these increases. As a result, the NI rates in 2022/23 were a mixture of the two rates i.e., the employer’s NI mixed rate was 14.53%.
A salary above the current personal allowance of £12,570 will also incur income tax at 20%.
Suggestion -hiring spouse as independent contractor
When you consider paying your spouse a salary, due to the increase in National Insurance rates and the National Insurance bands, an optimal salary when you pay your wife as an employee could be £1,047.50. Indeed, this is because your company will make more Corporation Tax savings even though there is an employer’s NI cost payable above £758 per month. This salary level is optimal if your spouse has no other sources of income, such as rental profits, self-employment profits, pension income, etc., that will use up your spouse’s personal allowance. If they have other income, £758 or £533 will be the optimal salary.
However, to ensure your spouse’s NI contributions count as a `qualifying year’ for state pension purposes, you need to pay them a salary of £533 or more for the full twelve months of the tax year.
Of course, your spouse needs to work for your business to pay the above-suggested salary. In addition, they also need to be putting in enough hours to justify their monthly salary.
Other considerations
PAYE scheme
As a company, to be able to pay a salary to you and perhaps your spouse, it will need to be running a PAYE scheme. HMRC will set this up, and your accountant will usually administer this for you. You can find out more about this on the HMRC website. The PAYE/NIC on any salaries will be part of your contractor limited company taxes.
Sole trader employing spouse (UK)
Many business owners will ask `I am self-employed, can I pay my wife a wage.’ If you are a sole trader, you cannot pay yourself a salary as your business will pay tax on your self-employment profits. However, you could set up a PAYE scheme, and once in place, you can consider hiring my spouse. Once they are hired, you can organise paying a spouse when self-employed. The resulting salary you will pay will be for any work that they do for your business.
Paying wife through limited company and operating the payroll
When operating the payroll, your business needs to be able to provide:
- Payslips to its employees each pay period.
- Make any relevant PAYE/NIC payments to HMRC every three months.
Nowadays, with the introduction of the internet, most business will run their payroll through specialist accounting software. In addition, this software will usually come with a licence fee. Therefore, in most cases, a business’ accountants deal with payroll processing.
Can husband pay salary to wife -saving company tax
When we look at can a husband employ his wife or vice versa, any salaries that the contractor or business owner pays will be regarded as a company expense. Therefore, it is a good idea to consider employing spouse to reduce tax for your business. As a result, when we consider whether can I employ my wife to reduce tax for my company, the salary that you pay to your wife will save Corporation Tax at the current rate of 19% or 25%.
Final thoughts on paying wife a salary
When we consider can you pay your spouse a salary, many contractors will go ahead with adding their wife or partner to the company payroll. As a result, when paying wife through limited company, your spouse will complete specific company duties, usually administration-type tasks. In return, they will receive a salary, and this will save company tax.
Link to Contractor Advice UK group on
