Tax in business

Spouses in business

If spouses work in the business, perhaps answering the phone, making appointments, writing business letters, making up bills and keeping the books, they should be properly remunerated for it. Being a payment to a family member, the Inspector of Taxes will be understandably cautious in allowing remuneration in full as a business expense. The payment should be:

actually paid to them, preferably weekly or monthly and in addition to any housekeeping monies recorded in the business book

- reasonable in amount in line with their duties and the time spent on them.

If the wages paid to them exceed £96.00 per week, Class 1 employer's and employee's NIC becomes due and if they exceed £5,225 p.a. (assuming they have no other income) PAYE tax will also be payable.

It should also be noted that once small businesses are well established and the spouses' earnings are approaching the above limits, consideration may be given to bringing them in as a partner. This has a number of effects:

  • there is a reduced need to relate the spouse's income (which is now a share of the profits) to the work they do
  • they will pay Class 2 and Class 4 NIC instead of the more costly Class I contributions and PAYE will no longer apply to their earnings but remember that, as partners, they have unlimited liability.
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