NI When Employing Someone for 2nd Job

[lje]

I am looking to employ my husband to do some part time work in my company. He has another job on which he pays NI and PAYE. I know how to treat the PAYE tax (he would have a BR tax code for his employment with my company), however, I am not sure what to do with NI.

Is it true that the NI 'allowance' is for each employment separately and if I don't pay him over the NI threshold then no NI will be due (either employees or employeers)?

[Craig@Clarity]

Hi lje,

That's correct.

[lje]

Hi lje,

That's correct.

That's amazing. So you could have multiple jobs bringing in a high income in total and not pay any NI as long as each one paid a small enough amount? Mind you - if I had to juggle that many jobs I'd probably deserve the extra money...

Seriously though - I can pay my husband around £7k a year with no NI due and on only 20% tax. Why didn't I do this ages ago?

[Craig@Clarity]

That's amazing. So you could have multiple jobs bringing in a high income in total and not pay any NI as long as each one paid a small enough amount? Mind you - if I had to juggle that many jobs I'd probably deserve the extra money...

Seriously though - I can pay my husband around £7k a year with no NI due and on only 20% tax. Why didn't I do this ages ago?

Bear in mind that if you pay him a salary, the £7,000 gross salary will reduce your corporation tax by 20% but he will have to pay 20% income tax so there's no real significant gain other than NI as you mentioned. He may be slightly disadvantaged as the £7,000 uses up that amount of his basic rate allowances which could otherwise have been absorbed by a dividend.

[lje]

Bear in mind that if you pay him a salary, the £7,000 gross salary will reduce your corporation tax by 20% but he will have to pay 20% income tax so there's no real significant gain other than NI as you mentioned. He may be slightly disadvantaged as the £7,000 uses up that amount of his basic rate allowances which could otherwise have been absorbed by a dividend.

He only owns 10% of the shares of the company and he has some unused basic rate 'space' as he has just gone part time with his main job. I pay myself £15k and then take around £30k dividends a year to stay within my 40% limit. I pay a chunk into pension and then the rest of the money sits in the company. This way we can get more of it out whilst only paying 20%. Alternatively we could change his share holding but that would look a bit dodgy I think - and anyway - there's work I want him to do!

Thanks a lot for your advice.

[ASB]

That's amazing. So you could have multiple jobs bringing in a high income in total and not pay any NI as long as each one paid a small enough amount? Mind you - if I had to juggle that many jobs I'd probably deserve the extra money...

Seriously though - I can pay my husband around £7k a year with no NI due and on only 20% tax. Why didn't I do this ages ago?

In terms of the NI yes. A corollary of that is that if you had 10 jobs paying 10k each you would pay NI on the full 100k (though there is a mechanism where the excess above the normal maximum can be reclaimed).

In terms of the TAX it would be normal for him to get a BR code. However this does not mean that no tax above basic rate is due (this will depend upon other sources of income). When he does his tax return if it turns out he is a higher rate payer then there will be some additional tax due. In this case it is likely he will eventually be issued with a D0 or D1 tax code enabling HMRC to get a better approximation at it through PAYE on his second job. In theory this will be detected from the end of year reports from all the employers triggering a tax return request if the total is such that he is a higher rate taxpayer.

Years ago there were to be some codes which were flat rate codes at some calculated rate relevant for the individual when it was the case that no single employment caused a taxpayer to move into higher rate but the total income did. I think these were F codes but they seem to have been dropped.

HM Revenue & Customs: Tax codes - the basics

Added: from your reply above it doesn't appear he is going to be a 40% taxpayer so most of it is irrelevant. However keeping him below the NI threshold will allow you as you say to get a bit more out without paying more than 20%.

[Greg@CapitalCity]

Basic rate

If your husband already earns above the personal allowance elsewhere, the tax benefit in paying him some salary from your business (compared to paying him dividends) is nil. You might as well save yourself a little payroll work and continue the dividend payments. If however your share structure is such that you cannot pay him any further dividends, then salary will do the trick nicely.

The HMRC would look a little sideways at employment income being paid to your husband so just ensure you keep good records, showing he was actually doing some work for your company. A small HR file for your husband would be ideal.

[lje]

If your husband already earns above the personal allowance elsewhere, the tax benefit in paying him some salary from your business (compared to paying him dividends) is nil. You might as well save yourself a little payroll work and continue the dividend payments. If however your share structure is such that you cannot pay him any further dividends, then salary will do the trick nicely.

The HMRC would look a little sideways at employment income being paid to your husband so just ensure you keep good records, showing he was actually doing some work for your company. A small HR file for your husband would be ideal.

Thanks - good idea. I'll make him a file. He will actually be doing work for the company - but not the fee earning variety.

I'm reticent to change the share distribution in the company and he only has 10%. I pay mayself dividends up to the 40% bracket and the rest goes into pension or is left in the company. I can't give him any more dividends without having to pay higher tax on mine. At least this way we can get a bit more out at 20%. The payroll work takes very little time so isn't an issue.

[Greg@CapitalCity]

Yep

Fair enough, and no problem about the lack of fee earning work he might be doing.

Sounds like your payroll is under control - but just keep in mind for the future that you could choose to change the class of shares you both hold - Ordinary A for you, and Ordinary B for your husband. With different classes of shares the dividends do not have to be paid on a pro rata basis. So with this arrangement you could pay your husband whatever you like in dividends, with no correlation required to the dividends you pay yourself.