Sunday, 1 June 2008
Can I Pay My Partner Through The Business?
It used to be common practice to pay a spouse or partner a small wage, in order to utilise their tax free personal allowances, or lower rate tax banding (particularly if they have no other employment).
This loophole has been partially closed in recent years, as any such salary must now be ‘earned’ by the person concerned, which can be difficult to prove when they have a full time job elsewhere.
One way around this, if you run your business as a limited company (and it is likely that you should be) is to issue a number of shares to your partner, so that they are able to receive part of the dividend paid for the year.
Under current legislation, a dividend is classed as investment income, rather than earned income, and, as such, there is no requirement to prove any involvement on the part of the partner. (Also, as investment income, it won’t be subject to National Insurance).
Alternatively, if they do actually play a part in the business (such as bookkeeping, administration or company secretary) then a salary is permitted, as long as it is at a commercial rate. One of the best ways to prove this is to ensure that they sign the odd document, from time to time, such as letters, cheques, etc.