Monday, 14 May 2012

Wife's wages

Where one spouse or partner employs the other in the business (often a husband employing his wife), it is perfectly in order for a salary to be paid to reflect the work done for the business. Often the salary is just below the Income tax or NIC threshold where there is just part-time involvement. It is worth stressing that two important conditions should be observed:

The salary should: 

  • actually be physically paid rather that just making a journal entry through drawings and;
  • be justifiable in relation to the type of work done and the hours spent.

Should the above points not be observed, then you run the risk that any amounts claimed in your accounts could be disallowed - which means that you will be required to pay more tax and national insurance on your profits!

In addition to the above, my opinion is that it makes sense that if wages are going to be paid to the wife, that a 'payroll scheme' is opened with HMRC to formalise the administration of this task and ensure the necessary paperwork is in place so that if some national insurance is desired to be paid - the year will count for state pension purposes.

Whilst there are additional compliance costs, these may secure the result you are after where poor paperwork and definition results in an unforeseen problem for you in the future.


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