Spouse tax and business advice
Written by Nick Moulds on 25th October 2018 in General Tax

There are numerous reasons why you might want to bring your spouse in to the business, including several tax benefits. Involving your spouse can mean a split income between the two of you which enables you to minimise higher rate tax and therefore increase family take home pay.  Finally, any gifts of business assets between spouses are free from capital gains tax and inheritance tax considerations. The important point of note here is to make sure that any involvement is commercially justifiable.

That all sounds positive so far. So should you just go ahead and announce this new status to HMRC?  Well, firstly you need to consider what type of employment you are going to declare.  HMRC won’t be best pleased with wildly inflated wages that don’t match up to the role described. For example, paying your spouse £40 per hour to answer the phone full time will most likely be deemed as excessive. You should always aim to pay realistic wages for the role undertaken.

Another option that may be available to you is, if you are self-employed, you can opt to make your spouse a partner.  If you choose to go ahead with this option then you will need to consider:

 

  • Preparing and signing a partnership agreement.
  • Understanding that any agreement will likely mean that your spouse will have a formal claim to a share of the business profits and a share of any proceeds should you sell the business.
  • Acknowledging that it will be difficult to convince HMRC of the validity of this partnership if your spouse has no formal role.

 

The advantage here is that by splitting the income you can take advantage of two basic rate income tax bands and access doubled up capital gains tax reliefs if you sell up.  At Moulds & Co Accountants we would highly recommend taking some professional tax advice before committing to this. Seeking advice from a trusted and experienced tax advisor can make all the difference

Before formalising arrangements, our team in Wetherby will be happy to speak with you and ensure that whatever changes you’re seeking to make will be the right ones for you, your spouse and your business.

It should be noted that, if you have an existing business you cannot simply transfer or issue shares to your spouse and split dividend payments between you. If this happens and HMRC treats this as a settlement then any dividends paid to your spouse will be taxed as if you had drawn them.  This will instantly negate any tax advantage. Issuing shares can be an effective strategy, but  speaking to a tax advisor beforehand will likely make sure that you can hit your objectives and come down on the right side of HMRC.  Again, having a knowledgeable accountant in your corner is highly recommended when introducing your spouse to the company.

How we can help – As you can see, there are tax advantages to be gained from employing or sharing your business ownership with your spouse. However, there is no one path that suits everyone and each step can be a complicated and daunting decision when taken alone. In our Wetherby Accounts office we have a team of experienced tax advisors and qualified accountants who are here to help guide you through your decision. To discuss your options with a member of the Moulds & Co team, please call 01937 584188 and we will be happy to discuss what is best for you.

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