Spouses On The Payroll

[SuperLooper]

I pay my spouse 11k per year. Accountant never ever objected to it. I know many here pay only £8k or so, but she wouldn't build up any state pension with that amount.

I thought £671/month (£8k/yr) would still contribute to the state pension requirement?

From Best Mix of Directors Salary and Dividend Levels 2015/16:

Take an annual salary of £8,060 which is £670 per month (rounded)
...
Even though you are not paying any NI, because it’s above the “Lower Earnings Limit” for NI , you are still protecting your entitlement to future state pension and benefits at this level of salary. If you like to keep things simple then we recommend this level.

[WordIsBond]

Got married recently so looking to see if circumstances changing means I an be more tax efficient, I don't use an accountant so can't ask them, but want to bounce my thinking off the learned populous!

Marriage Allowance allows me to transfer 10% of MrsMac tax allowance to myself, but I guess this is offset by the extra NI i would pay (10% and 13.8%), so 99 times out of 100 it would not be worth while, however if I was to bring MrsMac on to the books as a PA, and pay her an appropriate salary (£10 a hour, 1 day a week, so say £4500 a year) this would allow me to claim the Employment Allowance on Class 1 NI, but is this on both Employers and Employees NI or just the companies contributions?

I know technically I could give her a salary of £11k a year like myself, but feel uneasy as it would be almost impossible to justify her salary, and I want to stay within the spirit of the law as well as the letter.

I guess its a no brainer to make her a shareholder of the company, as it will be easier to keep below the higher tax bracket, especially as I have additional income from my BTL.

Didn't we just do this topic?

A. If you are staying below higher rate band, yes, you can transfer part of her marriage allowance. And this is probably not the most efficient thing to do -- it is more tax efficient to pay her a salary, because you do not pay Corporation tax or any kind of NI on salary up to £8K.

B. Employment Allowance applies to Employer NI but not Employee NI. With what has been announced, you would be eligible for EA, but we don't yet know that would be the case. You certainly would be eligible right now anyway. If she has had no other income, you can pay her some salary right now, before the new tax year. Worth considering.

C. I'd guess £4-5K is about the max that would be easy to justify as a salary for a personal assistant. Any more than that and it may be hard to justify if HMRC decide to challenge, which they very probably wouldn't do.

D. She needs to earn just under £6K a year to get credit towards state pension. If she has no outside earnings (part time job somewhere), the £4-5K won't do it. The best solution to that is to give her additional responsibilities. If you make her a director or company secretary, then she has legal responsibilities and liabilities, and should be compensated for that. So you pay her £8K total to cover her personal assistant duties and compensate her for her director/secretary responsibilities. That gets her pension eligibility, reduces CT, and incurs no NI.

E. When they finally get around to figuring out what they are going to do about EA, you decide whether salaries should go to £11K or not. If EA is gone, salaries above £8K will cost 12% employee NI and net 11.1% employers NI (13.8% minus CT savings), but will save 20% on CT. So you are marginally worse with an £11K salary (much worse if you have any benefits in kind).

F. If EA remains available, a salary of 11K is better for you and for her, and is justifiable if she is a director.

G. If you make her an employee but not a director or secretary, you technically have to give her a contract of employment, and you then have to go through pension AE. If there are no employees, only officeholders (director/secretary), AE is not required.

It seems a no-brainer to make her an officeholder, not just a personal assistant. Spares you AE, justifies a higher salary which is more tax efficient, whatever happens with Employment Allowance. And lets you forget about the Marriage Allowance transfer. That's irrelevant if you make her a shareholder and she is getting dividends, anyway.

[WordIsBond]

I know many here pay only £8k or so, but she wouldn't build up any state pension with that amount.

False. Threshold for state pension accrual is £112 a week.

[mudskipper]

... and there's auto-enrolment considerations if she's an employee, but not a director.

[SimonMac]

Didn't we just do this topic?

A. If you are staying below higher rate band, yes, you can transfer part of her marriage allowance. And this is probably not the most efficient thing to do -- it is more tax efficient to pay her a salary, because you do not pay Corporation tax or any kind of NI on salary up to £8K.

B. Employment Allowance applies to Employer NI but not Employee NI. With what has been announced, you would be eligible for EA, but we don't yet know that would be the case. You certainly would be eligible right now anyway. If she has had no other income, you can pay her some salary right now, before the new tax year. Worth considering.

C. I'd guess £4-5K is about the max that would be easy to justify as a salary for a personal assistant. Any more than that and it may be hard to justify if HMRC decide to challenge, which they very probably wouldn't do.

D. She needs to earn just under £6K a year to get credit towards state pension. If she has no outside earnings (part time job somewhere), the £4-5K won't do it. The best solution to that is to give her additional responsibilities. If you make her a director or company secretary, then she has legal responsibilities and liabilities, and should be compensated for that. So you pay her £8K total to cover her personal assistant duties and compensate her for her director/secretary responsibilities. That gets her pension eligibility, reduces CT, and incurs no NI.

E. When they finally get around to figuring out what they are going to do about EA, you decide whether salaries should go to £11K or not. If EA is gone, salaries above £8K will cost 12% employee NI and net 11.1% employers NI (13.8% minus CT savings), but will save 20% on CT. So you are marginally worse with an £11K salary (much worse if you have any benefits in kind).

F. If EA remains available, a salary of 11K is better for you and for her, and is justifiable if she is a director.

G. If you make her an employee but not a director or secretary, you technically have to give her a contract of employment, and you then have to go through pension AE. If there are no employees, only officeholders (director/secretary), AE is not required.

It seems a no-brainer to make her an officeholder, not just a personal assistant. Spares you AE, justifies a higher salary which is more tax efficient, whatever happens with Employment Allowance. And lets you forget about the Marriage Allowance transfer. That's irrelevant if you make her a shareholder and she is getting dividends, anyway.

Thanks

[WordIsBond]

The employment allowance rules are not finalised yet. It seems quite probable that in the final rules the allowance will not be allowed in this situation.

Maybe. If they exclude spouses, then they have to exclude partners, which is awkward to define legally. If they exclude partners, they have to exclude close family relatives. And so on.

It makes all the sense in the world to exclude spouses until you start to think about how to legislate in a way that won't unfairly disadvantage spouses compared to other types of relationships. It all becomes very complicated.

They can ignore relationships and just exclude director-only companies, but then SimonMac can just pay his wife as a PA and not make her a director.

The solution is to get rid of EA and instead actually reduce the outrageous 13.8% Employers NI marginally. Not that I'm complaining. This is one of those stupid complications in the tax law that actually benefits me rather than the other way around. But it is still a dumb way to run taxation.

[WordIsBond]

Thanks

You're welcome, and congratulations! Hope you are as happy in your marriage as I've been in mine.

[northernladuk]

False. Threshold for state pension accrual is £112 a week.

Oh dear. Someone is going to have to give their accountant a grilling

[SimonMac]

Last question, for those with a spouse do you pay salaries into join accounts or separate?

[mudskipper]

Maybe. If they exclude spouses, then they have to exclude partners, which is awkward to define legally. If they exclude partners, they have to exclude close family relatives. And so on.

It makes all the sense in the world to exclude spouses until you start to think about how to legislate in a way that won't unfairly disadvantage spouses compared to other types of relationships. It all becomes very complicated.

They can ignore relationships and just exclude director-only companies, but then SimonMac can just pay his wife as a PA and not make her a director.

The solution is to get rid of EA and instead actually reduce the outrageous 13.8% Employers NI marginally. Not that I'm complaining. This is one of those stupid complications in the tax law that actually benefits me rather than the other way around. But it is still a dumb way to run taxation.

Agreed.

I don't think it would be right to exclude spouses - that would effectively prevent someone from employing their spouse which would be daft. However, removing for all directors would mean the hassle of setting up auto-enrolment etc to take advantage. I think it's fair to assume they will do something.