Is employing my spouse in my business easy?

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Well now, that question can be answered on different levels.  I will be cautious and only address the tax matters. Whether the two of you work well together – only you will know….or find out later!

It is quite common for people in business to claim tax relief on the cost of employing their spouse.  Unfortunately less common are the cases where this is appropriate and where the right paperwork is in place.

The nice tax-man likes to argue about wages paid to your spouse, so you need to cover your back by doing it right.

Firstly the spouse must have work to do. It could be answering the phone and relaying messages, or it could be dealing with suppliers, writing up the books and delivering goods to customers. The key is that if you claim tax relief on the wages you must be able to justify them.

Secondly the pay must be appropriate to the work.  If your spouse simply goes to the bank once a week to lodge takings then you could not pay them £10,000 per year for doing it. A good test is ask yourself how much you would pay a stranger to do the same work.  Then pay this amount.

Thirdly the pay must actually be paid.  Ideally you pay weekly or monthly by cheque or standing order. That way you can prove the payments to a tax inspector.

Finally you must be prepared to operate Pay-As-You-Earn on the pay, taking off tax and National Insurance if appropriate.  This will apply if the spouse has other work or the weekly pay exceeds about £100.

Get all this right and you can make respectable tax savings.

Huston’s Hint

Pay your spouse what you would pay a stranger to undertake the same work.  That way you can defend the tax relief which you claim.