Getting Your Wife/Partner On The Company Payroll

[Techforcer]

Hi Guys,

My other half helps me out with a bit of admin for my Ltd company.

I understand that I could potentially put her down as an employee, pay her a salary, and thus get some tax benefits.

She already had a full time job, is this likely to be a problem, if she has 2 salaried jobs effectively?

She's not a big earner, and is nowhere near her £40K allowance threshold, so certainly has tax allowance that could be used to pull money out of the company.

Is there anything to watch out for here? Have I got the gist of how this works right?

Cheers,
Rich

[Clare@InTouch]

If she already earns above her tax code amount elsewhere then there's no overall tax benefit, as you'll save 20% in CT but she'll pay 20% in income tax. You can still do it of course.

If she earns under the higher rate limit then there's potential to issue shares to her if you wanted to, and that could save a fair amount in tax depending on the level of dividends you pay out.

[Pondlife]

If you are going to pay her just to extract cash from Your Co then make sure it's a realistic amount based on the work she actually does. Paying someone £20K a year for putting any envelope addressed to the company on your desk won't fly.

You say wife/partner - if it's wife then you're probably better off making her a shareholder and paying divs.

[Martin at NixonWilliams]

Hi Guys,

My other half helps me out with a bit of admin for my Ltd company.

I understand that I could potentially put her down as an employee, pay her a salary, and thus get some tax benefits.

She already had a full time job, is this likely to be a problem, if she has 2 salaried jobs effectively?

She's not a big earner, and is nowhere near her £40K allowance threshold, so certainly has tax allowance that could be used to pull money out of the company.

Is there anything to watch out for here? Have I got the gist of how this works right?

Cheers,
Rich

If you are considering making your wife/partner an employee it should be on commercial terms rather than to use her allowances. You should ensure that she is paid no more than a reasonable salary or hourly rate in line with the work actually performed. I see many contractors with partners earning around the income tax or national insurance threshold for what is likely to be only a few hours work per week at most. It is likely that such payments would be disallowed by HMRC.

You haven't stated whether this is your wife or partner. If it is your wife, you may be able to take advantage of her unused basic rate allowances by gifting her shares. The rules for this are very different to that of paying a salary.

I hope this helps.

Martin

[Wanderer]

I understand that I could potentially put her down as an employee, pay her a salary, and thus get some tax benefits.

The impression I get is that you don't want to pay her a salary otherwise your company may have to pay employer's NI, plus she will be liable for PAYE so it's not tax efficient. The thing to do is to make her a shareholder and pay her a dividend because she won't have any further tax to pay unless you push her into the higher rate tax bracket.

So, if she earns (say) 20k salary from her day job and your company dividends are 60k then do the shares so she is a 33% shareholder and you are a 67% shareholder so you take £40k div and she takes £20k.
A few other points:

It only works for your spouse (not an unmarried partner)
You don't have to justify the gift of shares to your spouse
The shares must be "ordinary shares" not preference shares.

That is my take on it, but I strongly recommend that you don't go down the DIY route otherwise you may make a mistake which costs you a lot of money in tax. Go to an accountant and give them all the figures then work out what the correct share split is.

[TykeMerc]

Also (unless it's changed) don't forget that a declared dividend on any class of share is paid in the same amount per share in the company, so you can't pay a dividend to only 1 shareholder selectively.

Plus; as a shareholder; another person is entitled to a say in how the company acts as they own a percentage, so thinking it through very carefully is wise.

[northernladuk]

Also (unless it's changed) don't forget that a declared dividend on any class of share is paid in the same amount per share in the company, so you can't pay a dividend to only 1 shareholder selectively.

Plus; as a shareholder; another person is entitled to a say in how the company acts as they own a percentage, so thinking it through very carefully is wise.

^ This. If your rate goes up you will still have to pay dividends in line with her percentage so may end up getting taxed more than you realised. Share waivers are to be avoided at all costs, as are changing your holding too often or soon after allocation.

Having a relationship go sour with her as a director can be very expensive as a number of contractors have posted on here have found out.

If you are just using her as a tax mule then think your plan through very carefully.

[stek]

^ This. If your rate goes up you will still have to pay dividends in line with her percentage so may end up getting taxed more than you realised. Share waivers are to be avoided at all costs, as are changing your holding too often or soon after allocation.

Having a relationship go sour with her as a director can be very expensive as a number of contractors have posted on here.

If you are just using her as a tax mule then think your plan through very carefully.

Look at the divorce threads too posted very recently - Food for thought..