Wife as a director/employee

[Craig@Clarity]

In all seriousness though, if she decided to quit her job and be put on your payroll, there is no issue with that. She's already a shareholder which is great as others have justified. Consider making her a director again for the reason others have said and employment issues. In terms of what level of salary to pay her your accountant can only advise of what you should consider e.g. an "admin" level of salary or perhaps minimum wage. They should be able to provide examples and advise on what is the most tax efficient level but they ultimately can't tell you you should go for X amount. They can give you the pro's and con's at different levels but you need decide based on informed advice.

What you will need to consider is the timing and how much she's earned from teaching as this potentially affects what tax she has to pay through your company which might make it less tax efficient. You're best actually speaking to your accountant and the precise figures. You mentioned they're not proactive but these sort of questions should stoke the fire.

In terms of tax efficiency, making company pension contributions will reduce your CT bill but you'll want to consider how much you want to contribute and tie up until retirement. IFA's are best placed to advise you on what to invest in and how much. Not an accountant's place to advise.

Make sure you're advised on what you can and can't claim through your company such as food, travel and accommodation, equipment, use of home, phones, internet, insurances etc.

[Alchemy Accountancy]

I'm uncertain of your position is on this Craig, perhaps you could provide some clarity, for the benefit of other CUK readers?

In terms of what level of salary to pay her your accountant can only advise of what you should consider e.g. an "admin" level of salary or perhaps minimum wage.

Are you suggesting that an admin level salary/minimum wage would be appropriate? i.e. salary be paid at the market level for admin work (assuming it is admin work that is being completed - or at an appropriate level for the nature of work if not admin).

They should be able to provide examples and advise on what is the most tax efficient level but they ultimately can't tell you you should go for X amount. They can give you the pro's and con's at different levels but you need decide based on informed advice.

What you will need to consider is the timing and how much she's earned from teaching as this potentially affects what tax she has to pay through your company which might make it less tax efficient.

Or are you suggesting that the wage should be set according to what is most tax efficient for the couple? i.e. regardless of commerciality, that salary should be set at a level which saves the most tax.

Thanks,
Craig

[Craig@Clarity]

I'm uncertain of your position is on this Craig, perhaps you could provide some clarity, for the benefit of other CUK readers?



Are you suggesting that an admin level salary/minimum wage would be appropriate? i.e. salary be paid at the market level for admin work (assuming it is admin work that is being completed - or at an appropriate level for the nature of work if not admin).



Or are you suggesting that the wage should be set according to what is most tax efficient for the couple? i.e. regardless of commerciality, that salary should be set at a level which saves the most tax.

Thanks,
Craig

What I'm saying is that as accountants, we should only be advising on what levels of salaries to consider and what affect that has. We can't go "telling" the client they should take a certain level of salary as that is not our place to do so. In the same breath I'm answering the OP question on what is tax efficient and advising him his accountant should be able to give examples of that.

[WordIsBond]

Are you suggesting that an admin level salary/minimum wage would be appropriate? i.e. salary be paid at the market level for admin work (assuming it is admin work that is being completed - or at an appropriate level for the nature of work if not admin).

Or are you suggesting that the wage should be set according to what is most tax efficient for the couple? i.e. regardless of commerciality, that salary should be set at a level which saves the most tax.

Or somewhere in between based on the fact that there is no such thing as a 'market level' for admin work. There is a range of rates and an average and OP can always claim that a spouse provides higher value than just an off-the-shelf bookkeeper, and should be at or near the top of the range, at least.

A spouse can provide better value because:
1. Willing to be flexible as to number of hours and schedule, happy to work 2 hours one month and 20 hours at year end, as needed, etc.
2. Knows the business better than a bookkeeping service would
3. Does more than a bookkeeper by taking part in discussions about business decisions (which contract should I take, should we get this laptop, etc)

[northernladuk]

Or just ask the client if he's taking the piss and his wife will never lift a finger as per 99.9% of these situations.

[Alchemy Accountancy]

Or somewhere in between based on the fact that there is no such thing as a 'market level' for admin work. There is a range of rates and an average and OP can always claim that a spouse provides higher value than just an off-the-shelf bookkeeper, and should be at or near the top of the range, at least.

A spouse can provide better value because:
1. Willing to be flexible as to number of hours and schedule, happy to work 2 hours one month and 20 hours at year end, as needed, etc.
2. Knows the business better than a bookkeeping service would
3. Does more than a bookkeeper by taking part in discussions about business decisions (which contract should I take, should we get this laptop, etc)

I agree that there is a range of rates/hours that could be appropriate for the nature of work undertaken - I would consider the 'market rate' to be somewhere within that range (placement within this range is clearly highly subjective). Likewise, I agree that the factors you describe could add value and so could enhance the rate - however even the enhanced rate will have a ceiling somewhere.

Lets say (to illustrate my point) that the 'market rate' with these enhancements is £50 per hour - a full time equivalent salary of c.£100k per annum or £400 per day - a well paid administrator, in my opinion at least. To get to the salary which is most tax efficient (I'll use £8k - close enough to the case for most), they would need to do 160 hours work per year, or 13 hours each month. In my experience of contractor businesses (and I am generalising here - so of course there will be exceptions), the administrative requirements are fairly straight forward and unlikely to take more than a few hours per month. It would therefore take a stretch of the imagination, in my opinion at least, to reach a salary that is both commercial and tax efficient in a husband/wife fee-earner/admin scenario.

[WordIsBond]

It would therefore take a stretch of the imagination, in my opinion at least, to reach a salary that is both commercial and tax efficient in a husband/wife fee-earner/admin scenario.

Yes, very clearly so. We have several employees and my wife still probably doesn't work more than 15 hours a month, and I don't think even she would argue she should be paid £50 / hour. Especially since she gets the tremendous unpaid benefit of being married to me! (I hope nobody tells her I said that....)

I think it is pretty easy to argue a non-exec director's stipend of £5K is appropriate (we've got turnover near £400K), and I also think a bookkeeper's salary of £3K is pretty reasonable. Combine the two and she's at £8K. But I don't see how anyone gets anywhere near £8K with a one-man band without making the spouse a director. It may not be enough for HMRC to bother with it but it seems like in a lot of cases it would be an easy win for them.

[Maslins]

But I don't see how anyone gets anywhere near £8K with a one-man band without making the spouse a director. It may not be enough for HMRC to bother with it but it seems like in a lot of cases it would be an easy win for them.

IMHO it would take a particularly brave inspector to challenge on this point. Their argument basically needs to be "your spouse isn't worth that much". You can imagine it making tabloid front page "How very dare the government suggest I'm not worth £X".

[craigy1874]

IMHO it would take a particularly brave inspector to challenge on this point. Their argument basically needs to be "your spouse isn't worth that much". You can imagine it making tabloid front page "How very dare the government suggest I'm not worth £X".

I agree, the whole thing is subjective, but it is up to the client to decide (with our assistance). In all the years I have done this job, I have had ZERO queries or enquiries into this from HMRC.

Be commercial and be sensible and you will not have any issues.

[Platypus]

Reduce your CT bill by dumping large sums into a SIPP.