August 18, 2014 Pay your Spouse If you partner or spouse is undertaking work to support your business then they should be paid for the work that they have done. If your partner is not currently earning in excess of the annual personal allowance (for 2014-15 £10,000) then it makes sense to pay them a salary, particularly if you are in danger of paying Higher Rate tax. The salary that you pay must be in line with the work and hours that they are working, although if in doubt you could just pay the current National Minimum Wage Rate of £6.31 (this is the rate for employees aged 21 or over). Paying your spouse between £111 and £153 per week will also earn them a credit for national insurance contributions and preserve their entitlement to the State Pension. Pay your children You can also employ your children subject to the relevant employment laws. The current national minimum wage rates are £3.72 per hour for under 18s and £5.03 for employees aged 18 to 20. As long as the work involved is safe, doesn’t require heavy lifting and doesn’t involve work during school hours or before 7am and after 7pm it is legal to employ anyone over the age of 12. If your children are in full-time education and you only employ them during the holidays you may be able to apply special rules to their pay allowing them to be paid without deducting tax. Pension Contributions for Family Members You are allowed to make personal pension contributions of up to £3,600 gross (£2,880 net) into a registered pension scheme for yourself and your family members regardless of income level or age. However you can also consider your company making pension contributions which are not subject to earnings limits (but there is an annual limit) so can be more flexible. In order for company pension contributions to qualify for tax relief against your business income, you will need to be able to prove that the expenditure is wholly and exclusively for the purposes of trade and that the amounts paid are reasonable in relation to the remuneration package for your partner. Pensions are a specialist area and we can recommend an IFA who will talk you through the different options for pensions and whether to make contributions personally or through your company and what the various limits are on how much can be paid into schemes. Interest Free Loans From Your Company It’s a slippery slope, but if used wisely your company can provide you with a tax and interest free Director’s Loan. Where the balance on the loan is under £10,000 and the loan is repaid within 9 months and one day from the end of the accounting year, the director can take the loan interest and tax free. As long as the loan does not exceed the £10,000 limit at any point during the year then there is no benefit in kind or Class 1A National Insurance to pay on the loan. Don’t Take Dividends over the Higher Rate Threshold You do not need to take all of the distributable profits out of your company, if it is not necessary. Presuming you have no other income and take a gross salary of £10,000 per annum, you can pay yourself a further £28,809 in dividends before you have any personal tax to physically pay on your income for the year. Any dividends taken over this will be subject to 32.5% tax (or 42.5% on dividends over the dividend additional rate of £150,000). This is also applicable if your spouse or partner is a shareholder in your company. If you want to make sure your company is completely tax efficient, contact us to arrange a meeting to talk through your individual situation.