Are your spouses wages tax deductible? Reply

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:

  1. Its ‘wholly and exclusively’ for the benefit of the business
  2. The payment must reflect the actual work done and be realistic
  3. The payment must be shown in the accounts
  4. The wages must actually be paid
  5. 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)

steve@bicknells.net

You could employ your spouse to help you do your job Reply

Accounting Standards

Many micro business owners employ their spouse and as long as they perform a role in the business that’s fine and it can be very tax efficient.

But there are circumstances in larger businesses with several owners/directors where it isn’t practical to directly employ your spouse.

However, it could be possible to claim an expense for using your spouse as an assistant, take a look at EIM32415

A deduction can be given in the following circumstances:

  • where the employee is paid solely by results so that, in taking on assistance, the employee can maximise his or her earnings from the employment.
  • where it is actually part of the duties of the employment to engage and remunerate assistants to do some of the work.

So it may be possible to amend your employment contract to identify parts of your job that could be done by someone else and you could add a clause which says that you must ensure the work specified is done and that its your duty to employ an assistant to do it.

The duties could be anything – Admin, Secretarial, Market Research, Telesales…..

Depending on how much you pay your assistant you may need to account for PAYE and NI.

steve@bicknells.net