August 30, 2006
Salaries & State Pensions - Hot Topics Q&A
Q. What is the optimum salary to pay my wife, as an employee, to help reduce my 40% tax burden and make the most of all her allowances, bearing in mind once I pay a certain amount she will have to start paying PAYE tax and we will have to both start paying employee and employers national insurance contributions?
A. I can give you guidance, but please bear in mind that we are not accountants, therefore you should speak to your accountant before you take any action.
If you pay your wife less than £84 pw she will not qualify for a basic state pension, unless she qualifies as a carer looking after children under age 18 or elderly parents. If you pay her between 84 and 97 pw she will qualify for basic state pension (the amount will depend upon length of service) and pay no national insurance.
If you pay her 96.82pw she will use up all her personal allowance and not pay tax (I'm assuming she will have no other source of income). Employer's NIC also starts at 97pw. All these figures apply to the 2006/07 tax year.
Also keep in mind that her duties within the practice will need to be demonstrated to the Revenue if required. It is also worth checking with the National Pensions Agency as to her current state benefits to ensure that they have worked it out correctly until now.
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Filed under Pensions, Q&A, Tax by Ray Prince
