paying wife through limited company

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Introduction 

When you’re contracting in the UK or doing business day-to-day, you may wonder, can I pay my spouse a salary as a contractor? While you work through your limited company and pay yourself a contractor salary, you may consider whether paying spouse a salary is a good idea and if  I can hire my spouse as an employee. Furthermore, you may ask can I employ my wife to reduce tax? When you pay your partner a salary, how much tax might this save for your company? Also, is there anything else to consider regarding paying your spouse a salary and taking them on as an employee of your business? Therefore, if paying wife through limited company is possible, what will the tax savings be for the business? As a limited company contractor or small business owner, the thoughts around whether I can employ my spouse and pay my partner a wage in 2024/25 could arise when either:

In this paying wife through limited company guide, we’ll research what to consider concerning a contractor paying a spouse a wage. Moreover, we’ll investigate the tax implications of paying your spouse as an employee. As a side note, it’s important to remember that you shouldn’t be looking at paying your wife a salary to avoid tax. In other words, if you plan on hiring your wife as an employee, they must work for your company and carry out specific duties regularly. Therefore, if you’re to pay your partner a salary (limited company), what else should you consider regarding wife pay through your business?

Initial thoughts

Besides your own business owner salary (UK) and considering how to be tax-efficient, a common thought is can I employ my wife. Another common thought is how much can I pay my spouse to work for me? Indeed, the question regarding whether you can employ your spouse will pop up quite often from limited company contractors. When it comes to paying a salary to my wife, the good news is you can employ your partner. However, when you consider paying your spouse a wage, you should look at your business overall to see if it’s something you’d like to do.

Paying your partner a salary may be an option if they want to work for your business. However, depending on your partner’s other taxable income, further tax implications may exist. Therefore, in this guide, let’s consider how to pay a spouse as an employee and what we should think about here.

Further initial thoughts on employing spouse (limited company)

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. Therefore, you may ask if I can hire my spouse as an independent contractor when you’re contracting. Basically, when you run your own business as a limited company contractor, you’ll probably be an employee in your business. Consequently, you may take a director’s salary as a contractor and the main income generator. When we consider whether I can hire my wife as an independent contractor, your company can pay a contractor spouse salary if they’re going to work for your company. Therefore, if they will help your business in terms of working for it, the next thing to consider is how to proceed with paying wife through limited company.

Paying salaries to family members

Besides considering remunerating your partner, what about putting family members on the payroll? A family business will often employ members of the family of the person or persons who started the company. As a result, they’ll be paying a salary to family members.

Therefore, a limited company employing family members is typical when you’re a business owner, including a UK contractor. As a result, it may be worthwhile to consider paying your spouse to reduce tax (UK) in return for some work for your company.

You may consider hiring family members as contractors. If they have the necessary skills, this is an option. However, in UK contracting, it could be better for them to have their own company in some scenarios.

Check with your accountant about hiring and paying wife through limited company 

You may ask your accountant can I pay my spouse a salary. Alternatively, you may ask if you can pay another family member a salary from your company. Before considering employing and paying your spouse a salary, you must consider if they will do some work for your business. If they are, you can add them to the payroll and go ahead and pay your wife as an employee for the hours worked on behalf of your company. As a result of hiring your spouse as an employee, the spouse’s salary costs are an expense, which will help reduce your company tax bill.

Depending on your partner’s earnings, it may also be a good idea to consider using the Marriage Allowance transfer. However, this isn’t available for everyone, and you can check the position to see if you can claim it.

What should I consider concerning whether I can pay my wife a salary from my company? 

Paying wife through limited company & are they a higher-rate taxpayer? 

When considering whether I should pay my wife a salary, there’s no real benefit in doing this if they already earn above the higher rate tax (£50,270). Consequently, if your company did employ your wife, it’ll save Corporation Tax on the salary cost. However, your spouse would incur PAYE tax on their salary at 40%. Therefore, in this case, it wouldn’t be beneficial in paying spouse a salary.

Paying my spouse a salary & are they using their tax allowance?

Another thought, when we consider whether I can pay my partner a wage, is that there’s no real benefit in a wage for your wife through your limited company if they already earn enough to use up their personal tax allowance. This is set at £12,570 in 2024/25.

As a result, if your company does this, it’ll save Corporation Tax (CT) 19% or 25% on the salary cost. However, your spouse would incur PAYE tax on their salary at 20%.

Paying wife through limited company & is their income less than £12,570 per annum?

In contrast, when we consider a spouse’s wage, if your partner has no other salary or earns less than £12,570 per annum, you could pay them a limited company 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. Moreover, your spouse would receive the monthly net salary and use up some or all of their personal tax allowance.

The main aspects to consider when employing & paying your spouse a salary 

Do they work & perform tasks for your company? 

Most importantly, when you examine whether my wife can be an employee, your partner should do some actual work for your company to justify their pay level. For example, when you employ your wife, such tasks when you pay your spouse as an independent contractor could be administration-type tasks, and these may include:

  • Answering the phone.
  • Opening company mail.
  • Dealing with company e-mails.
  • Updating the company’s accounting system.
  • Creating company invoices.

It’s important to note that if you pay your wife or partner a wage and they’re not doing any work, HMRC may challenge their salary in the future.

Paying wife through limited company & the National Living Wage (NLW) & National Minimum Wage (NMW) 

As an employer, when we consider how much you can pay your wife or spouse, you must pay at least the NLW or NMW if:

  • If your spouse isn’t a director; and
  • They don’t have a contract of employment.

The NLW and NMW rates change on 1 April every year, and in 2023/24 were:

23 and over 21 to 22 18 to 20 Under 18 Apprentice
Apr-23 £10.42 £10.18 £7.49 £5.28 £5.28

From 1 April 2024, the rates for NLW and NMW in 2024/25 are now extended to 21 and 22 year olds. These are:

NLW (21 & over) 18-20 16-17 Apprentice
Apr-24 £11.44 £8.60 £6.40 £6.40

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 you pay your spouse as a salary? 

Putting your spouse on the payroll 

If you decide that paying your wife through your business is something you’d like to do, how much can you justify as a salary for them?

As a company owner, you should consider the `wholly and exclusively’ for the purpose of the business rule when you claim business expenses. Indeed, this rule is one of HMRC’s essential guidelines, and BIM37735 covers this in detail.

Similarly, when paying your spouse, you must consider the value of their work for your business. Therefore, when you’re paying your spouse a salary, this should be at a `commercial rate’ for the work they do for your company. To sum up, you should consider what you’d pay someone else for doing the same job as your spouse.

Paying wife through limited company & the tax bands & NI rates

In 2024/25, the tax-free personal allowance is £12,570.

National Insurance contributions in 2024/25 apply as follows:

  • The Lower Earnings Limit (LEL) is set at £533 per month or £6,396 per annum. There are no NI contributions at this level, but employees receive the benefits of paying.
  • Employers are required to pay employer NICs on earnings above the Secondary Threshold limit (ST). This is set at £758 per month or £9,096 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 (UEL) is set at £4,189 per month or £50,270 per year.
  • There’s no upper earnings limit for employer NIC liabilities.

The rates for National Insurance in 2024/25 are:

  • 8% employees’ NI for income between the Primary Threshold and the Upper Earnings Limit. This employee NI rate was 10% from 6 January 2024 to 5 April 2024; prior to 6 January, it was 12%.
  • 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.

A salary above the current personal allowance of £12,570 incurs income tax at 20%. Please view this page for the rates, PAYE tax, and NI thresholds for employers from 2024 to 2025. 

Suggestion on paying wife through limited company & hiring your spouse as an independent contractor 

When you consider a wage for your spouse, due to the recent 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. Other incomes would include rental profits, self-employment profits, pension income, etc. Basically, other income may use up your spouse’s personal allowance. Therefore, if they’ve other income, £758 or £533 may be the optimal salary.

Also, to ensure your spouse’s NI contributions count as a `qualifying year’ regarding NI credits for state pension purposes, you should pay them a wage of £533 or more for the full twelve months of the tax year. As mentioned, your spouse must work for your business to earn the above-suggested salary. In addition, they should work enough hours to justify their monthly salary.

Other aspects in respect of wife’s wages (HMRC) 

PAYE scheme

As a company, to be able to pay a wage to you and perhaps your spouse, it should be running a PAYE scheme. After applying for this, HMRC will set it up, and a contractor accountant will usually administer it for you. You can find out more about this on the HMRC website. The PAYE/NIC on any salaries is 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’re a sole trader, you can’t 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’re employed, you can organise paying a spouse when self-employed. As a result, the salary you’ll pay is for any work they do for your business. 

Paying wife through limited company & how do you operate the payroll?

When hiring a spouse or other employees and operating the payroll, your business must provide:

  • Payslips to its employees for each pay period.
  • Make any relevant PAYE/NIC payments to HMRC every three months.

Since the introduction of the internet, most businesses run payroll through specialist accounting software. This software usually comes with a licence fee. In most cases, a business’s accountants will handle payroll processing.

Can a husband pay salary to his wife & save company tax 

When considering whether a husband can employ his wife or vice versa, any salaries paid by the contractor or business owner are treated as a company expense. Therefore, it’s a good idea to consider employing your spouse to reduce your business’s tax. As a result, when we investigate can I employ my wife to reduce tax for my company, the salary you pay to your wife saves Corporation Tax at the current rate of 19% or 25%.

Final thoughts 

Many contractors will add their partners to the company payroll after considering whether they can employ my wife and pay her a salary. As a result, when paying wife through limited company, your partner will complete specific company duties, usually administration-type tasks. In return, they will receive a wage for the hours worked, saving company tax for your business.

Link to Contractor Advice UK group on

LinkedIn https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Contractor Tips, Payroll /

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