It’s fairly commonplace these days for contractors to employ their spouse or partner to assist them – often in an administrative role. It makes sense on a number of levels:
- The admin work (bookkeeping, filing, schedule planning, invoice chasing, etc.) that you would otherwise have to do in your spare time can be done by someone else during work hours, freeing up time for your whole family.
- It means these tasks can be done from your home, rather than you having to provide an office space for someone else to work.
- It can provide significant tax benefits as it transfers some of your income to your partner. If he or she pays tax at a lower rate than you do, or if they have unused personal tax allowance, this is likely to create a tax saving for you and your household.
What you need to remember about employing your partner
You need to be able to justify their salary to both yourself and to HMRC so bear the following in mind:
- You must pay a commercially justifiable rate. So, if your partner is just doing some filing and bookkeeping one day a week, you’re not going to be able to justify paying them £50K pro rata.
- Following on from the previous point, the salary needs to be affordable to you as you do actually have to pay it.
- Similarly, National Living Wage regulations will apply, so you must ensure you’re complying there.
- Premiums on pension arrangements or similar, will not be taxable on your partner. However, you can treat them as a business expense and so will save on your tax bill.
How to administer a salary
If this is your partner’s only employment, they need to complete a Starter Checklist, ticking Statement A. Once that’s done, you can pay up to £118 per week without any further formal arrangements.
If you are setting up a PAYE scheme for your partner (or already have one) the following points need to be considered:
- If you pay between £118 and £166 per week, your partner’s entitlement to state pension will be protected without having to pay National Insurance.
- Anything between £166 and £962 per week is subject to employee’s NI at 12% and employer’s NI at 13.8%. Any salary exceeding £962 per week is subject to employee’s NI at 2% and employer’s NI at 13.8%.
- Your partner’s personal circumstances affect their income tax position.
- Employee’s NI contributions stop at state pension age, but employer’s do not.
Another thing to remember about employing your partner is that you will need Employers’ Liability Insurance, something which Kingsbridge includes in its contractor insurance packages as standard. This provides you with legal cover should your partner suffer any injury as a result of their employment with you. If you’re due for renewal, call us on 01242 808740 to speak to our expert team about your contractor insurance requirements, or visit our site to get a quote today.