How much work does my wife need to do for a salary?

[d000hg]

My wife's currently unemployed and I wondered what my options are to pay her from my company. I'm not working as a typical contractor, I actually find clients independently and source a small team more like a real, albeit small, software company.

I believe it's still possible to do some kind of income shifting with dividends legally, though it was almost stopped last budget IIRC? But I wondered about what the best way to do things are... she could be an employee or I could contract her or make her a director...

[malvolio]

Just make her a shareholder. Provided she buys her own shares there are absolutely no implications, that's what Arctic was all about.

There are no hard and fast rules about paying her a salary, provided it is roughly in lline with the work she does. If the rate is disproportionate to the level of work (or responsibliity), Hector will see it as an artificial tax avoidance measure.

[ASB]

Further to what Malvolio said it is unlikely (but not impossible) HMRC would ever challange a salary around the 5k mark. Thius may be a neat way of using her personal allowances and ensuring she still gets a years pension creadit. Pay her the LEL. Slightly more efficient than divis for this portion. Of course if she has other PAYE income using her tax allowances then there is not point doing this (indeed it would be counter productiove).

[PhilAtBFCA]

Spouse in Ltd Company

d000hg

There are plenty of tax planning opportunities with a non working spouse for tax planning.

You may also need to take into account any loss of jobseekers allowance and working family tax credits that you are entitled too, whilst also considering your tax planning.

IMHO a spouse should have a market rate for the job that is being done and employed for the number of hours that the work takes, HMRC may decide to see though any artificial arrangements.

AS far as shares are concerned then transfers between spouses that are a gift ( not paid for ) are preferable, but you probably need to take advice before going ahead, getting it wrong may lead to problems a few years down the line.

Phil

[MPwannadecentincome]

AS far as shares are concerned then transfers between spouses that are a gift ( not paid for ) are preferable, Phil

Interesting that it is that way around - is there any info on this publicly available or do I have to pay someone to tell me why?

[malvolio]

I actually thought it was the other way round: the argument about Arctic was that Mrs. J had paid for her own shares so they could not be seen as a gift from Mr J. and so were not beneficial income. I shall do some research...

[ChimpMaster]

I actually thought it was the other way round: the argument about Arctic was that Mrs. J had paid for her own shares so they could not be seen as a gift from Mr J. and so were not beneficial income. I shall do some research...

As I thought too.

There is also the case that it is preferable to have the partner as a shareholder when the Ltd is formed, prior to any contract having been started.

[PhilAtBFCA]

Arctic Systems - Gift of Shares

Malvolio,

Actually both views are right, the best reference is here point number 94.

In the actual case £1 was paid for the share, but actually the case was one because at £1 it was a gift, any way of valuation would have been greater.

It was important in this case that the gift was more than just a right to income, it was more in this case, as a share is a right to income and capital.

So it was for this reason that Section 660a applied to the Jones's as the gift of the shares was between spouses and so exempt under the settlement rules.

Hope that helps.

Phil

[malvolio]

Malvolio,

Actually both views are right, the best reference is here point number 94.

In the actual case £1 was paid for the share, but actually the case was one because at £1 it was a gift, any way of valuation would have been greater.

It was important in this case that the gift was more than just a right to income, it was more in this case, as a share is a right to income and capital.

So it was for this reason that Section 660a applied to the Jones's as the gift of the shares was between spouses and so exempt under the settlement rules.

Hope that helps.

Phil

Thanks. In the meantime, I've asked Geoff Jones for his view; hopefully he'll agree with you!

<EDIT> Just heard from Geoff. Agrees with your view, where the parties are spouses it's all a bit moot.