A reader asks if he needs to inform the authorities if he wants to pay his wife a small salary for ‘administrative’ work done for his company. The question has been answered by James Poyser.
Your wife is not required to notify HMRC about the wage if it is her only source of income and no tax is due. However, your limited company (as the employer) must operate PAYE correctly and report the payments to HMRC.
Paying a spouse a salary is allowed, but it must be genuine and properly reported. Even small amounts should be processed through PAYE, and the work carried out must be real and commercially justifiable.
Historically, employers reported wages using forms such as the P35 and P14. These have now been replaced by Real Time Information (RTI).
This means your company must submit details of your wife’s pay to HMRC each time she is paid, using a Full Payment Submission (FPS).
If the salary is set above the Lower Earnings Limit (LEL) but below the Secondary Threshold (ST), no National Insurance is payable for the employee or the employer. However, it can still count as a qualifying year for state benefits.
This is often used as part of a wider salary and dividends strategy for family-run limited companies.
Even where no tax or NIC is due, reporting the salary correctly ensures your wife receives National Insurance credits towards the State Pension and certain other benefits.
You can check the latest thresholds on GOV.UK here: National Insurance rates and thresholds.
Important considerations
The salary should always reflect the actual work carried out. Paying a spouse a wage purely to reduce tax or make the most of their unused basic tax band, without real duties, may be challenged by HMRC.
It’s also worth ensuring that:
- the work is clearly defined (e.g. admin, bookkeeping, invoicing)
- the pay is reasonable for the tasks performed
- payments are made through the company payroll system
If structured correctly, paying a spouse can be a legitimate and tax-efficient way to extract value from a company.
About the Author
James Poyser is the CEO at inniAccounts, an award-winning online accountancy service for contractors and consultants.
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