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By Lynne Gowers on 24th June 2015
Employing your partner in your limited company is a tax efficient way to boost your productivity and household income. Firstly, it can free you up to concentrate on delivering and winning fee earning work and secondly, it can keep a larger portion of your income in your household tax free.
If your partner has no other source of income, you can pay a salary up to the personal allowance (currently £10,600 ) tax free. This is also deductible from your business’s profits, so will reduce your corporation tax.
If you are caught within IR35, any salaries you pay to employees, including your partner, come out of your 5% overheads allowance.
If your partner becomes a shareholder in your company, they can also benefit from tax efficient payments in the form of a low salary and dividends. If you have no other employees earning over the lower tax allowance, this means you will also have no obligations under the recently introduced auto-enrolment legislation. You should also ensure that national minimum wage applies to all non-shareholder employees.
To enjoy these benefits legitimately, you will need to prove that your partner is genuinely working for your company and that their salary and benefits reflect their duties and working hours. You also need to be wary as unrealistic payment arrangements could raise suspicions at HMRC.
Keeping accurate and clear records of all the work your partner does for your business will help you demonstrate the legitimacy of their employment. A spreadsheet or diary updated weekly or monthly, along with mileage and other supporting records will enable you to keep track of all your partner’s activity and, if necessary, justify their salary to HMRC.
If you’re a Boox customer, and want to learn more about the benefits of taking on an additional employee, please get in touch with your accountant who can discuss this with you to make sure it’s going to be appropriate for your business. Not a Boox customer – then why not join today and benefit from our innovative accounting app and our knowledgeable team of expert accountants.
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