Pay rise for the other half?

Where one spouse employs the other, it is necessary to be able to justify the level of income paid - if the salary appears to be too generous for the duties involved, the Inland Revenue will not allow it to be an effective transfer for tax purposes. Now, however, the National Minimum Wage rules may apply to require a minimum amount to be paid - unincorporated family businesses are exempt in respect of family members living at home, but family companies may be affected. The Inland Revenue are responsible for the National Minimum Wage as well as for PAYE on salaries, and they may even argue that more should be paid out.

Traditionally, many people have paid their spouse a little less than the lower threshold for National Insurance Contributions, to avoid the significant contribution that was required when you crossed that line. The National Insurance rates were changed from April 2000 to take the first £76 per week out of NIC altogether, but benefits start to accrue at a pay rate of £67 per week. From April 2001, there will be no NIC to pay on up to £87 per week (the weekly equivalent of the income tax personal allowance), but benefits will be earned on pay above £72. You can therefore earn benefits and save tax on a salary to a spouse, without having to pay any NIC. The "downside"is that pay which earns benefits has to be reported to the Inland Revenue under the PAYE system (so that the entitlement can be recorded), so there is paperwork to complete even if there is no charge.

Actionpoint:

REVIEW THE AMOUNT PAID TO FAMILY MEMBERS

[ previous ] | [ next ]

Home | Disclaimer | Privacy