Money Matters

Employing your spouse in your private practice

The logic behind employing your spouse in your private practice is often sound – if you look at a couple as a whole, you are likely to pay less tax if you can spread the income between you both so as to utilise two sets of personal allowances and basic rate tax bands.

If you are a high earning couple, for example married consultants both on 40% or 50% tax rates, there is little to be gained from going down this route, but for others it can be a useful planning tool.

If a spouse or civil partner is employed in the business, care must to be taken. It is important that their services can be justified (i.e. are they worth what they are paid). You cannot simply create a role on paper for your spouse and then pay a salary.

In practise, however, it is rare for the spouse of a consultant not to help out to some degree – they may well perform receptionist/secretarial duties, help with banking matters, do a spot of bookkeeping etc. Such services should be rewarded with a reasonable wage.

Another issue concerns payment arrangements. Far too often a spouse will perform a vital role in the practice, be paid a reasonable wage via the PAYE scheme, but because the payments have not been handled correctly the consultant will be denied the expected tax relief.

It is vital that the wages of a spouse are paid by standing order into an account in your spouse’s name. Should your payments be made into a joint account or be made in cash, HMRC have the power to treat the payments as not having been made and can deny you the appropriate tax relief.

If the payments are less than the personal allowance (currently £6,475), there is no need to set up a PAYE scheme as long as your spouse does not have another job. Should their salary be greater than the allowance or if it is possible to obtain NIC credits for the spouse, you will need to register with HMRC and go through all of the PAYE hoops regarding tax, National Insurance, end of year returns etc. In practice many consultants simply get their accountants or a payroll bureau to relieve them of the hassle.

It is not uncommon for the services of a spouse or partner to command a salary in excess of the tax and national insurance thresholds. When this happens, the downside is often that national insurance (paid both by the employee and the employer) leaves the couple worse off than if they had paid a low salary.

There are ways around such issues, for example through the creation of a partnership (there is a lot of misunderstanding about partnerships – many accountants will say that husband and wife partnerships will be attacked by HMRC, whereas if things are handled properly you should have no problems).

For the majority of consultants, utilising their spouse in the practice is a practical way to save tax – but make sure that you do not get caught out by the small print.

John O’Leary is head of medical taxation at Sheen Stickland LLP. Contact him on [email protected] or 01420 83700.

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