Home For accounting professionals General accounting discussion
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚


'Wife Salary'

JamesBJamesB Feels At HomeRegistered Posts: 51
Good morning all,

A simple question that has been bugging me for a while!!

So often you see people stick through £5700 for 'wife's salary' in the accounts.

I know the tax reasons for this but the thing I need to know is:

1) Does the company/sole trader have to set the 'wife' up on some sort of PAYE scheme and give her a P60 at the end of the year?

or

Do nothing?!!

I know several sole traders who stick through the £5k but are not set up on any PAYE scheme or give the 'wife' payslips or P60s, or fill out end of year P35's etc.

2) What are the implications if the 'wife' then decides half way through a tax year she needs some more money and gets second employment with John Smiths Ltd and is employed under PAYE.

Would she then need to fill in a tax return each year as has second employment?

An example would be self employed husband sticks through £5,000 on his tax return for wife.

Wife is also employed by John Smiths under PAYE and earns £4,000 in the year. All of this is taxed and NI as the wife has informed John Smiths her personal allowance is eaten up by a seperate employment.

Her P60 shows Tax paid £800.

Does she then need to file a tax return?

If so will it look like:

Employment income (£5k + £4k) £9,000
PA (£6,475)
Taxable £2,525

@ 20% £504
Tax @ Source (£800)
Rebate Due £296

This is the tax side of things but what about NI? No Class 1 NI would have been paid from husbands business so how does this get sorted out?

I can only apologise if this is a stupid question and I have gone round the houses but it has been bugging me for ages and really want to know so I can sleep easy at night!!

*PS in the above example it was 'wife' salary, but this could easily have been a 'husband' salary or 'daughter' salary. I do not want our female members to think I am a sexist pig!! :blushing:

Comments

  • stefanborostefanboro Well-Known Registered Posts: 187
    This is quite a loaded topic and there are lot's of things to say that I don't have time for as typing but hopefully other members will elaborate.

    Firstly, assuming a sole trader, the amount paid to the wife, if not under PAYE and if she is not invocing him as a genuine consultant (which would then make her a sole trader who needs a tax return etc), would simply incur tax by the husband himself.

    Secondly, let's say the wife was being paid under PAYE (or even if not) remember to read about settlements legislation and how you can accomodate for any potential HMRC questions on the matter.
  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    Assuming that the sole trader husband isn't a higher rate tax payer then it only makes sense paying the wife a salary up her personal allowance - after that whatever's saved by the husband is taxed on the wife so it's pointless. Therefore if the wife is earning say £4k a year already then the husband would only need to pay her £3500 to maximise the tax saving.

    If the wife is paid under the lower earnings limit and has no other job then there is no requirement for the husband to register for PAYE or complete any payroll forms.

    This is somewhat over-simplified - it ignores the NI implications and will change when there's higher-rate tax involved.

    Sometimes I am a bit wary of putting through salaries for wifes, but to be honest I think that in many circumstances if the wife doesn't have another job they genuinely do usually have a fair bit to do with the business - I always point out that they will need to be able to prove that their spouse does actually work for their wages if they're investigated.
Sign In or Register to comment.