When you are in business and are setting up for the first time or you have been running your company for quite some time you might think can I pay my spouse a salary through my company? If so, how much can I pay them as a salary? These are questions that pop up quite often from contractors, and the good news is you can, although you will need to take an overall look at your business to see if this something that you would like to do.
When you are running your own company, you may also be an employee in your business. As a contractor and the main income generator you may also be taking a director’s salary. What’s more, you may also decide to make your spouse an employee, too, and pay them a salary for any work that they do for you.
Depending on what your spouse earns, it may also be an idea to consider making use of the transfer of the Marriage Allowance
What to consider
Is your spouse a higher rate taxpayer?
There is no benefit in paying your spouse a salary if they are already earning above the higher rates tax level (£50,270).
As a result, if your company did, it would save Corporation Tax (CT) at 19% on the salary cost. Your spouse, though, would pay PAYE tax on the salary at 40%.
Are they using up their tax allowance?
There is also no real benefit in paying your spouse a salary if they already earn enough to use up their allowance. The personal allowance is currently £12,570 in 2021/22.
Consequently, if your company did, it would save CT at 19% on the salary cost. Your spouse, however, would pay PAYE tax on the salary at 20%.
Do they have no other salary or have income less than £12,570 per annum?
In contrast, if your partner or spouse has no other salary or earns less than £12,570 per annum, you could pay them a salary and make some tax savings. Your company would save CT at 19% on the salary cost, and your spouse would receive the monthly net salary.
Employing your spouse and paying them a salary
Working and performing tasks for your company
Importantly, if you are going to pay your spouse a salary, they should also be doing some work for your company to justify this. Such tasks could be administration type tasks and could include:
- answering the phone;
- opening company mail;
- dealing with company e-mails;
- updating the company’s accounting system;
- creating invoices
If your spouse is not doing any work, HMRC may challenge the salary.
For your 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.
National Living Wage (NLW) and National Minimum Wage (NMW)
Please note, you will need to pay at least the National Living Wage or National Minimum Wage if: [spacer height=” 20px”]
- If your spouse is not a director; and
- does not have a contract of employment.
This is £8.91 per hour (NLW) for over 23’s as of April 2021. NMW applies for 22 and under and for 21-22 the rate is £8.36, for 18-20 it is £6.56 and for 16-17 it is £4.62. For Apprentices, the rate is £4.30.
Apprentices are entitled to the minimum wage for their age if they are both aged 19 or over and have completed the first year of their apprenticeship.
Finally, if you decide to pay your wife or partner a salary, you may wonder how much.
As part of this you will need to consider here what is the value of the work that they carry out for your business. What’s more, £797 per month (£9,564 per annum) is the current minimum level that counts as a qualifying year for UK state pension purposes.
Many contractors choose to pay their spouse a salary through their company. In turn, the spouse will carry out certain tasks for the company, usually administration type tasks.