I run my own business and my wife isn’t currently working. Could I pay her a wage equivalent to her annual personal allowance, and then claim this to reduce the tax I pay?
Yes, you can do this and it could potentially save you a substantial amount of tax every year, particularly if you’re a higher rate tax payer. BUT, there are a few things that you’d need to do before this would be considered allowable:
- You must actually pay the wage, ideally into your wife’s personal bank account (steer clear of paying it into a joint account)
- The wage must be for work done and the pay should be reflective of the type of work done e.g. don’t say you’ve paid your wife the minimum wage for 3 hours per week to deliver a highly skilled job that would normally command triple that payment
- You must complete PAYE paperwork for your wife, in the same way that you would for any other employee
Another bonus point to note is that if you keep your wife’s wage below the annual personal allowance level, you won’t have any tax or national insurance to pay either, but she’ll still get national insurance credits.
However, we can’t stress enough the importance of completing the appropriate PAYE paperwork.