Paying wife salary as well as dividends

[NorthWestPerm2Contr]

In summary:

-I have made my wife a 15% owner in the business.
-She earns around 8k a year in her own job.

how much can/should I pay her in salary or should I just increase her share ownership? Also how would I do that - just speak to the accountant?

Cheers guys

[Clare@InTouch]

There's no tax benefit in paying her anything - you'll save 20% CT but she'll pay 20% income tax. You can pay her anyway if you want to, obviously.

Your accountant can help with either transferring some of your shares to her, or issuing new shares in order to get the balance you want.

[northernladuk]

In summary:

-I have made my wife a 15% owner in the business.
-She earns around 8k a year in her own job.

how much can/should I pay her in salary or should I just increase her share ownership? Also how would I do that - just speak to the accountant?

Cheers guys

You are getting there......

Note... You pay her for the amount of effort she puts in to your business. 5k just for bookkeeping won't cut it. Giving her anything for no imput won't cut it either.

[ASB]

You are getting there......

Note... You pay her for the amount of effort she puts in to your business. 5k just for bookkeeping won't cut it. Giving her anything for no imput won't cut it either.

In practice that is highly unlikely to be challenged at that level but could be. Do you have any evidence of anybody actually being challenged?

I think the accountants have never mentioned an actual challenge at those sorts of modest level.

In any event for the OP any salary atall would be counter productive since the wife has used her allowance elsewhere and there are NI implications so he would definitely have to pay below the NI Threshold.

[northernladuk]

In practice that is highly unlikely to be challenged at that level but could be. Do you have any evidence of anybody actually being challenged?

I think the accountants have never mentioned an actual challenge at those sorts of modest level.

In any event for the OP any salary atall would be counter productive since the wife has used her allowance elsewhere and there are NI implications so he would definitely have to pay below the NI Threshold.

I don't but I am not in the habit of giving people advice to do something just because they won't get caught. You should know I like to play devils advocate on here by now.

[ASB]

I don't but I am not in the habit of giving people advice to do something just because they won't get caught. You should know I like to play devils advocate on here by now.

I know

But don't put words into my mouth. As I said it is unlikely to be challenged. That is a world away from "not getting caught".

The point remains that HMIT doesn't generally attempt to attack a modest salary because they have no overall confidence in winning at the commissioners. I think the last case in this area was before I was born. And I'm old.

[Greg@CapitalCity]

how much can/should I pay her in salary or should I just increase her share ownership? Also how would I do that - just speak to the accountant?

The generally accepted rule is to pay your wife a market rate for the work she does. If she does no work for your company, then pay her £0. And in your case this would be just fine (from a tax perspective) because the £8k a year she earns in her other job uses up her personal allowance nicely.

The advantage of gifting your wife shares (and please have a read of what NLUK says on the subject for balance) is primarily to keep you both under the basic rate earnings threshold (£42,475 this year). If your company earnings is such that after your salary, and maximising dividend payments to you/your wife, that your earnings stays below the basic rate earnings threshold, then there is no point gifting more shares to your wife - ie no nothing.

If however you find that your own personal earnings could exceed the basic rate earnings threshold, then you could look to reduce your income by shifting some of it over to your wife. Now, we know income shifting is very contentious, so speak to your accountant, and make sure you get the details right.

In a case such as yours, where your wife earns a low income, if your rate is about £250 per day or more, then spend the time to sit with your accountant and discuss share ownership between yourself and your wife. Get them to run an illustration - if you plan correctly, its a useful tax planning tool that is worthy of consideration.

[Sausage Surprise]

Why pay her anything??
I don't pay mine.

[northernladuk]

Why pay her anything??
I don't pay mine.

Loads of people keep paying mine!!!

[mudskipper]

The salary thing is interesting.

If I'm benched for a year, does this mean I shouldn't draw a salary for that year as I'm not actually doing any work?

(Hypothetical question)