Employing wife. How?

[Too much tax]

What do I need to do in order to employ my wife in the business?
She will be paid an amount under her personal allowance. Do I need to inform the IR I am employing her, or just enter it on my tax return? What about NI payments?

[deanshepherd]

If your wife has no other income and you are paying her below the lower earnings limit (£82 per week for 2005/06) then you do not need to set up a formal PAYE scheme.

If you are paying more than this then you will need to register the scheme with the Revenue and make appropriate deductions for tax and NIC.

Any salary paid to your wife should be reasonable consideration for the work done. Otherwise, the Revenue may disallow the expenditure in your accounts.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk

[Too much tax]

Thanks for that.

My wife does 2 hours a week working in a school, for which she gets paid around £10 per week. Am I able to pay her the extra £70 to keep below the limit without having to tell the IR?

[tax me less!]

You can pay her that providing it is reasonable for the work done (I'd recommend you obtain evidence) and she is paid at least the minimum wage for the hours worked. I'd also recommend a contract of employment.

[Lambs]

M,

I'd recommend that you considered paying at a rate which will exceed at least the Lower Earnings Limit, but not necessarily the Primary Earnings Threshold. This will allow her to obtain the annual 'credit' for entitlement to State Benefits, including State Pension on Retirement. This would, however, require submission of an Annual PAYE Return, etc., to HM Revenue & Customs, so that they actually know that she's in receipt of salary.

As T has already advised, what you pay may well be subject to market (and other) forces but the additional benefit of an increased entitlement to State Pension is, I think, worth considering.

As ever, you should consider disucssing this in further detail with a suitably qualified professional. They might, for instance, be in a position to advise that your wife has already attained the required number of 'annual credits' in order to qualify for the full State Pension, so there's no advantage in acquiring further years' credits. (By using Form BR19 - State Pension Forecast).

Regards,

Lambs