Tax savings through employing the spouse in the business - tax year 2013-14

If you have a business, help from your spouse in running your business should improve productivity. Often this work is not remunerated. The owner of the business does not want the additional administrative work involved in paying a salary. However, if the accounts of the business were to reflect their contribution they would show a truer picture and it can be advantageous for tax. Where the spouse already has other income this would require a separate study.

In the illustration below a company director and business owner receiving all the business income in his name is compared with a sharing scheme where his spouse receives 38% of the business income. In both cases the optimal division between salary and dividend income was used. The 38% used is not an optimal split (50% is optimal) but the choice of the percentage is not too critical and was chosen as a typical amount.

Chart showing UK tax savings via spouse's share of business income 2013-14

For a business earning £80,000 this arrangement would save £7,997. Business income of £40,000 would save £1,544 and £140,000 would save £14,690.

In order to benefit from these tax savings the partner or spouse should not be receiving a salary elsewhere otherwise a more detailed study would be necessary.