Any salary paid will be subject to Income Tax and National Insurance as well as having to comply with National Minimum Wage and Auto Enrolment.
But you can only use the cost as a business tax deduction if:
- Its ‘wholly and exclusively’ for the benefit of the business
- The payment must reflect the actual work done and be realistic
- The payment must be shown in the accounts
- The wages must actually be paid
- If you provide for wages they must be paid within 9 months of the end of the accounting period
Mark McLaughlin explains more in this video and tells about a recent case involving a Heating Engineer and his wife. Mark is a brilliant tax writer and I have already order his next book ‘Tax Planning 2017/18’
The rules don’t only cover spouses, they also cover other family members.
There are many other pitfalls relating to other ways to share income such as dividends.
The s660 rules (or settlements legislation) have been around since the 1930s.
The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)